<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November 24, 1999
REGISTRATION STATEMENT NO. 333- [ ]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
IKON RECEIVABLES, LLC
(exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 501 Silverside Road 23-2990188
(state or jurisdiction of organization) Suite 28 (I.R.S. Employer
Wilmington, Delaware 19809 Identification No.)
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
______________________
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number, including area code, of agent for service)
______________________
Copies to:
Harry G. Kozee, Dominic Liberatore, Esq. Peter Humphreys, Esq.
IOS Capital, Inc. Ikon Office Solutions, Inc. Dewey Ballantine LLP
1738 Bass Road 70 Valley Stream Parkway 1301 Avenue of the Americas
P.O. Box 9115 Malvern, PA 19355 New York, New York 10019
______________________
</TABLE>
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Amount Proposed Maximum Aggregate Proposed Maximum Aggregate Amount
Being Registered To Be Price Per Unit(1) Offering Price(1) Of Registration Fee
Registered
<S> <C> <C> <C> <C>
Lease-Backed Notes (the "Notes") $1,000,000 100% $1,000,000 $278
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
______________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Prospectus supplement to prospectus dated _______, 1999
IKON Receivables, LLC $____________
Issuer Lease-Backed Notes, Series 2000-1
IOS Capital, Inc.
Originator and Servicer
- --------------------------------
- -------------------------------------------------------------------------------
[IOS LOGO]
You should read the section entitled "Risk Factors" starting on page S-12 of
this prospectus supplement and page 7 of the prospectus and consider these
factors before making a decision to invest in the notes.
The notes represent asset-backed debt secured only by the pledged assets and are
not interests in or obligations of any other person.
Neither the notes nor the underlying leases will be insured or guaranteed by any
governmental agency or instrumentality.
This Prospectus Supplement may be used to offer and sell the notes only if
accompanied by the Prospectus.
- -------------------------------------------------------------------------------
IKON Receivables, LLC, as issuer, will issue [_______] classes of notes backed
solely by a pledge of the assets of the asset pool. The assets of the asset pool
will consist of a pool of office equipment leases or contracts and related
assets.
The notes --
o The ________ classes of notes set forth in the table below are offered by
this prospectus supplement.
o Interest and principal on the notes is scheduled to be paid monthly, on
the __th day of the month, or the business day immediately following such
__th day. The first scheduled payment date is ________ , 2000.
Credit enhancement --
o
Underwriting --
o The underwriters will offer the public the notes at the following prices:
<TABLE>
<CAPTION>
Initial
Aggregate Price
Note to Underwriting
Class Balance Note Rate Public Discount Depositor(1)
--------------- ----------- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
(1) Before deducting expenses, estimated to be $________.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus supplement. Any representation
to the contrary is a criminal offense.
[ ------------ ]
The date of this prospectus supplement is ________, 2000
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS
We provide information to you about the notes in two separate documents
that progressively provide more detail: (1) the accompanying prospectus , which
provides general information, some of which may not apply to your series of
notes, and (2) this prospectus supplement, which describes the specific terms of
your series of notes.
This prospectus supplement does not contain complete information about
the offering of the offered notes. Additional information is contained in the
prospectus . You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the offered notes to you unless you have
received both this prospectus supplement and the prospectus.
To the extent the prospectus contemplates different or multiple
options, you should rely on the information in this prospectus supplement as to
the application option.
The issuer has filed with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act of 1933, as
amended, with respect to the offered notes offered pursuant to this prospectus
supplement. This prospectus supplement and the prospectus, which form a part of
the registration statement, omit certain information contained in such
registration statement pursuant to the rules and regulations of the Commission.
You may inspect and copy the registration statement at the Public Reference Room
at the Commission at 450 Fifth Street, N.W., Washington, D.C., and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can obtain copies of such materials at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a site on the World Wide Web containing reports, proxy materials,
information statements and other items. The address is http://www.sec.gov.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY.........................................................................................................S-5
PARTIES.........................................................................................................S-5
Issuer...................................................................................................S-5
Originator...............................................................................................S-5
Seller...................................................................................................S-5
Servicer.................................................................................................S-5
Indenture Trustee........................................................................................S-5
Cut-Off Date.............................................................................................S-5
Closing Date.............................................................................................S-6
DESCRIPTION OF THE NOTES........................................................................................S-6
PAYMENTS ON THE NOTES...........................................................................................S-6
Payment Date.............................................................................................S-6
Record Date..............................................................................................S-6
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C>
Remittance Period........................................................................................S-6
Cross-Collateralization..................................................................................S-6
Interest.................................................................................................S-7
Principal................................................................................................S-7
Available Funds..........................................................................................S-7
Priority of Payments.....................................................................................S-7
Events of Default........................................................................................S-7
CREDIT ENHANCEMENT..............................................................................................S-8
Subordination............................................................................................S-8
Asset Pool...............................................................................................S-8
General..................................................................................................S-8
The Leases...............................................................................................S-8
Origination and Acquisition..............................................................................S-9
Servicing...............................................................................................S-10
Lease Substitution......................................................................................S-10
Repurchases for Breaches of Representations and Warranties..............................................S-10
Advances................................................................................................S-10
Certain Legal Aspects of the Lease......................................................................S-11
Optional Redemption.....................................................................................S-11
Material Federal Income Tax Consequences................................................................S-11
ERISA Considerations....................................................................................S-11
Rating of the Notes.....................................................................................S-11
RISK FACTORS...................................................................................................S-12
THE ASSET POOLS................................................................................................S-14
THE ISSUER.....................................................................................................S-14
THE LEASES.....................................................................................................S-15
USE OF PROCEEDS................................................................................................S-20
THE ORIGINATOR.................................................................................................S-20
Loss and Delinquency Experience.........................................................................S-20
THE SELLER.....................................................................................................S-20
THE INDENTURE TRUSTEE..........................................................................................S-21
General.................................................................................................S-21
Duties and Immunities of the Indenture Trustee..........................................................S-21
DESCRIPTION OF THE NOTES.......................................................................................S-21
General.................................................................................................S-22
Collections.............................................................................................S-22
Distributions...........................................................................................S-23
Prepayment and Yield Considerations.....................................................................S-24
Weighted Average Lives of the Notes.....................................................................S-25
DESCRIPTION OF THE TRANSACTION DOCUMENTS.......................................................................S-25
Acquisition of the Lease Receivables Pursuant to an Assignment and Servicing Agreement..................S-26
Repurchase Obligation...................................................................................S-26
Substitutions...........................................................................................S-26
[Security Interest].....................................................................................S-27
Representations and Warranties of the Originator and the Seller.........................................S-27
Indemnification.........................................................................................S-27
The Accounts............................................................................................S-27
Available Funds.........................................................................................S-27
Priority of Payments....................................................................................S-28
Interest................................................................................................S-29
Principal...............................................................................................S-29
Withholding.............................................................................................S-29
Optional Redemption.....................................................................................S-29
The Servicer............................................................................................S-29
Assignment and Servicing Agreement......................................................................S-29
Remittance and Other Servicing Procedures...............................................................S-30
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Servicing Compensation and Payment of Expenses..........................................................S-30
Reports to Noteholders..................................................................................S-30
Evidence as to Compliance...............................................................................S-31
Certain Matters Relating to the Servicer................................................................S-32
Events of Servicing Termination.........................................................................S-32
[Rights Upon an Event of Servicing Termination].........................................................S-32
Events of Default.......................................................................................S-32
Early Retirement of the Notes...........................................................................S-32
Amendment...............................................................................................S-32
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.......................................................................S-33
General.................................................................................................S-33
ERISA CONSIDERATIONS...........................................................................................S-33
RATINGS........................................................................................................S-33
PLAN OF DISTRIBUTION...........................................................................................S-35
LEGAL OPINIONS.................................................................................................S-35
</TABLE>
S-4
<PAGE>
SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
o You can find a listing of the pages where capitalized terms used in this
prospectus supplement summary are defined under the caption "Index of
Principal Defined Terms" beginning on page S-36 in this prospectus
supplement and under the caption "Index of Terms" beginning on page 47 in
the accompanying prospectus.
PARTIES
Issuer
IKON Receivables, LLC is a Delaware limited liability company. The issuer's
activities will be limited by the terms of its organizational documents and the
transaction documents to acquiring, holding and managing the lease receivables,
issuing and making payments on the notes and other activities related thereto.
For more information about the issuer, you should read the section titled "The
Issuer" herein.
Originator
IOS Capital, Inc., is a Delaware corporation formerly known as IKON Capital
Inc., a wholly-owned subsidiary of IKON Office Solutions, Inc. The originator's
principal executive offices are located at 1738 Bass Road, Macon, Georgia 31208
and its telephone number is (912) 471-2300.
For more information about the originator, you should read the section titled
"The Originator's Leasing Business," in the Prospectus.
Seller
IKON Receivables -1, LLC, is a Delaware special purpose corporation. The
issuer will acquire the lease receivables from the seller pursuant to the
assignment and servicing agreement. The seller's principal executive offices are
located at 1738 Bass Road, Macon, Georgia 31208.
For more information about the role of the seller, you should read the section
titled "The Seller," herein.
Servicer
IOS Capital, Inc. will be the servicer of lease receivables under the assignment
and servicing agreement. The servicer's principal executive offices are located
at 1738 Bass Road, Macon, Georgia 31208.
For more information about the role of the servicer, you should read the section
titled "Description of the Transaction Documents--The Servicer," herein and in
the prospectus.
Indenture Trustee
__________, a banking corporation organized under the laws of ________ . The
corporate trust offices of the indenture trustee are located at ________.
Cut-Off Date
The cut-off date is the close of business on _____, [ ____ ] (the "cut-off
date").
S-5
<PAGE>
Closing Date
The closing date is _______, 2000 (the "closing date").
DESCRIPTION OF THE NOTES
o The issuer will issue [___ ] classes of lease-backed notes (the "notes").
o The notes are designated as the class A notes and could involve other
classes. The class A notes, together with any such other classes, are
collectively referred to as the notes.
o The notes will be backed solely by a pledge of a segregated pool of assets
of the issuer, which will consist primarily of a pool of office equipment
leases or contracts and related assets, [leases intended as security
agreements], [installment sale contracts], rental stream obligations, and
the seller's interests (other than its ownership interest in the underlying
equipment) and related assets.
o Each class of notes will have the initial principal amount and interest
rate set forth in the following table. The dates on which the final payment
of principal and interest on each class of notes is expected to be made and
must ultimately be made are also set forth in the following table.
<TABLE>
<CAPTION>
Initial Note
Principal Expected Final Legal Final
Class Balance Note Rate Payment Date Maturity Date CUSIP Number
- ------------------- ------------- --------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
[A] $[ ] [ ]% _____ __, ____ _______ ____ [ ]
[B] $[ ] [ ]% _____ __, ____ _______ ____ [ ]
</TABLE>
The aggregate initial note principal balance of the notes is equal to $[ ] (the
"initial note principal balance"), which represents the sum of the initial note
principal balance of each class of notes.
The notes will be issued in book-entry form only, through the facilities of The
Depository Trust Company. The notes will be issued in minimum denominations of
[$1,000] and multiples of [$1,000] in excess thereof, [with the exception of one
note in each class which will be issued in an odd amount].
PAYMENTS ON THE NOTES
Payment Date
Principal and interest is scheduled to be paid to the noteholders on the [15]th
day of each month, or, if such day is not a business day, on the next succeeding
business day, commencing on _______, 2000.
Record Date
The indenture trustee will make payments to the noteholders of record as of the
close of business on the last business day of the month preceding the month in
which such payment date occurs (or in the case of the initial payment date, the
closing date).
Remittance Period
Payments made on each payment date will relate to the collections received in
respect of the leases during the period beginning on the opening of business on
the [second] day of the immediately preceding calendar month and ending on the
close of business on the [first day] of the calendar month in which such payment
date occurs.
Cross-Collateralization
o As described in the related transaction document, the source of payment for
notes
S-6
<PAGE>
of each series will be the assets pledged to the related asset pool only.
o Certain of the notes include the right to receive monies from a common pool
of credit enhancement. No payment received on any lease receivable backing
an asset pool may be applied to the payment of notes backed by any other
asset pool.
Interest
[Information on the interest payable to Noteholders will be provided in
accordance with the structuring of the transaction.]
Principal
[Information on the interest payable to Noteholders will be provided in
accordance with the structuring of the transaction.]
Available Funds
With respect to each payment date, the funds received on or prior to the last
day of the month preceding the month of such payment date (the "calculation
date"). These funds relate to payments on the leases, proceeds from casualties,
terminations or repurchases of leases, recoveries on defaulted leases, advances
made by the servicer to cover delinquent leases and investment proceeds thereon
(excluding certain amounts specified in the indenture) shall constitute
available funds which are available for distribution by the indenture trustee on
such payment date.
Priority of Payments
On each payment date, amounts received during the related remittance period in
respect of the lease receivables are to be paid, until such amounts are
exhausted, in the following order of priority:
first [ ];
second [ ];
third [ ];
fourth [ ];
fifth [ ];
sixth [ ].
o However, if an event of default and acceleration of the notes has occurred
or a restricted event has occurred:
first [ ];
second [ ];
third [ ];
fourth [ ];
fifth [ ];
sixth [ ].
seventh [ ].
o restricting event means the occurrence of any of:
(i) an event of default by the servicer under the assignment and
servicing agreement;
(ii) events of default; and
(iii) replacement of the servicer.
Events of Default
"Events of default" under the related transaction documents will consist of any
one or more of the following:
o a default for [five] days or more in the payment of any interest on any
note;
o a default in the payment of the principal of or any installment of the
principal of any note when the same becomes due and payable;
o default in the observance or performance in any material respect of any
covenant or agreement of the transaction made in the transaction documents,
or any representation or warranty made by the issuer in the transaction
documents or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect as of the time made, and the continuation
of any such default or the failure to cure such breach of a representation
or warranty for a period of 30
S-7
<PAGE>
days after notice thereof is given to the issuer by the indenture trustee
or the issuer and the indenture trustee by the holders of at least 25% in
principal amount of the notes then outstanding; or
o certain events of bankruptcy, insolvency, receivership or liquidation of
the issuer.
If an event of default should occur and be continuing with respect to the notes,
the indenture trustee or a majority (by outstanding principal amount) of the
noteholders may declare the principal of the notes to be immediately due and
payable. Such declaration may, under certain circumstances, be rescinded by a
majority of the noteholders.
o Outstanding principal amount means with respect to any class of notes and
any date of determination the difference between (a) the initial principal
amount of the notes of such class at the issuance thereof, less (b) all
amounts previously distributed with respect to such class as principal.
The information described above is qualified in its entirety by the more
detailed description of the flow of funds set forth herein under "Description of
the Notes--Flow of Funds."
CREDIT ENHANCEMENT
The credit enhancement available to the noteholders will consist of [more
information will be provided upon the structuring of the transaction].
Subordination
[The credit enhancement available for the benefit of any class of notes is
provided by each class of notes having a lower priority of payment than such
class of notes.]
Asset Pool
General
The property comprising the asset pool will consist of:
o A portfolio of chattel paper composed of leases, leases intended as
security agreements, installment sales contracts, or rental stream
obligations, together with all monies received relating thereto (the
"leases");
o The seller's security or other interests (other than its ownership
interest) in the underlying equipment, property and proceeds relating to
the leases (the "equipment" and together with the leases, the "lease
receivables"). However, the asset pool will not have any residual interest
in the related equipment after the related lease receivable has been paid
in full.
o All amounts held in accounts established by the servicer pursuant to the
transaction documents.
o All the rights to proceeds and recoveries on insurance policies covering
the equipment and on the disposition of repossessed equipment.
o Credit enhancement with respect to an asset pool or any class of notes.
o The interest of the issuer in any proceeds from recourse to lessees on
lease payments.
o Other rights of the issuer under the assignment and servicing agreement.
o All proceeds of the foregoing.
The Leases
o The leases are obligations for the lease or purchase of the equipment, or
evidence borrowings used to acquire or refinance the equipment, entitling
the obligee thereunder (the "lessor") to receive a stream of scheduled
payments (the "scheduled payments") and related payments and, in some
cases, to either the return of the equipment at the termination of the
related lease or, with respect to certain of the leases, the payment of a
purchase price for the
S-8
<PAGE>
equipment at the election of the obligor thereunder (the "lessee").
o The originator will transfer the lease receivables comprising each asset
pool to the seller and the seller will transfer such lease receivables to
the issuer pursuant to an Assignment and Servicing Agreement (as defined
herein). The issuer will then pledge all of its right, title and interest
in and to such lease receivables to an indenture trustee on behalf of
noteholders pursuant to an indenture. The leases transferred to the issuer
and pledged to the indenture trustee shall have a discounted lease balance
(as defined below).
o The "discounted lease balance" of a lease as of any cut-off date is the
present value of all of the remaining payments scheduled to be made with
respect to such lease, discounted at a rate and frequency specified below.
o The "discounted present value of the leases", at any given time, shall
equal the future remaining scheduled payments (not including delinquent
amounts, excess copy charges, maintenance charges and fee per scan charges)
from the leases (including non-performing leases), discounted at a rate
equal to ____ %, which rate is equal to the sum of (a) the weighted average
interest rate of the various classes of notes, each weighted by (i) the
initial principal amount of such note classes and (ii) the expected
weighted average life (under a zero prepayment, and no loss scenario) of
each note class, as applicable, and (b) the servicing fee rate of ____%
per annum.
o For more information about the leases, you should read the section titled
"The Leases" herein.
Origination and Acquisition
Each lease was previously originated by either:
o the originator; or
o acquired by the originator from other originators of leases.
For all of the leases:
o the leases are valid and enforceable, and unconditionally require the
lessee to make periodic lease payments (including taxes);
o the leases are noncancellable and do not contain early termination options
(unless the early termination or prepayment clauses require the lessee to
pay all remaining scheduled payments under such lease);
o all payments payable under the leases are absolute, unconditional
obligations of the lessees;
o all of the leases require the lessee or a third party to maintain the
equipment in good working order, to pay all the costs of operating the
equipment, including taxes and insurance;
o the leases do not materially violate any U.S. or state laws;
o the leases provide for periodic payments;
o in the event of a casualty loss, the lessee, at its expense, must replace
the equipment with like equipment in good repair, acceptable to the
originator or pay at a minimum the outstanding principal or net book value
of the leases and any applicable make-whole premium;
o the leases have been sold to the issuer free and clear of any liens and are
assignable without prior written consent of the lessee;
o the leases are denominated in U.S. dollars and the lessor and each lessee
are located in the United States;
o the lease is not a consumer lease;
o the lease is not subject to any guaranty by the originator;
S-9
<PAGE>
o the party transferring the lease to the issuer did not use adverse
selection when choosing the lease for transfer to the issuer;
o the lessee has represented to the originator that it has accepted the
equipment;
o the lessee is not a subject of an insolvency or bankruptcy proceeding at
the time of the transfer;
o the leases are not defaulted leases;
o each lease is not more than 60 days past due at the time of transfer to the
issuer;
o require the periodic, scheduled payment of rent or other payments on a
monthly, quarterly, semi-annual, or annual basis, in arrears or in advance.
Servicing
The servicer is responsible for servicing, managing and administering the leases
and the equipment and enforcing and making collections on the leases. The
servicer is required to exercise the degree of skill and care in performing
these functions that it customarily exercises with respect to similar property
owned or serviced by the servicer.
For a further description of the Servicer and the Servicer's delinquency and
loss experience, you should read the section titled "The Servicer" herein.
Lease Substitution
Subject to certain limitations, the originator may substitute an eligible lease
for any defaulted lease, prepaid lease, or lease that has had its terms modified
or adjusted in accordance with the transaction documents. The substitute lease
must be at least equal in discounted lease balance and comparable in terms of
credit quality, monthly payment, and other characteristics; provided, that in no
event shall the maturity date of any lease substituted for a lease removed from
the related asset pool be later than the last maturity date of any lease
receivable.
For a further description of Originator's Substitution Option, you should read
the section titled "The Leases--Substitutions" herein.
Repurchases for Breaches of Representations and Warranties
The originator will be obligated to repurchase from the issuer the issuer's
interest in any lease if the noteholders' interest in the lease is materially
adversely affected by a breach of any representation or warranty made by the
originator, which representation or warranty has been assigned to the issuer by
the seller, with respect to such lease receivable, which breach has not been
cured as of 30 days following the discovery by or notice to the issuer of the
breach.
For a further description of Originator's repurchase obligations, you should
read the section titled "Description of the Notes--Representations and
Warranties of Originator" herein.
Advances
In the event that any obligor fails to make its full scheduled payment due on
time, the servicer may make an advance from its own funds of an amount equal to
such unpaid scheduled payment, if the servicer, in its sole discretion,
determines that the servicer is likely to be repaid from collections from or on
behalf of the related obligor and that such amount has not been deposited in the
collection account by three business days prior to the payment date.
The indenture provides for the reimbursement of the servicer for such advances.
For a further description of the servicer's obligation to make advances, you
should read the section titled "Description of the Notes--Servicer Advances"
herein.
S-10
<PAGE>
Certain Legal Aspects of the Lease
With respect to the transfer of the leases to the seller by the originator and
then by the seller to the issuer pursuant to the assignment and servicing
agreement and the pledge of the issuer's right, title and interest in and to
such leases on behalf of noteholders pursuant to the indenture, the originator,
the seller and the issuer, respectively, will warrant that:
o the transfer of the leases is a valid transfer and assignment of the leases
or the grant of a security interest in the leases, except for the ownership
interest in the equipment, which the seller is not transferring to the
issuer; and
o if the transfer of the leases to the issuer is deemed to be a grant to the
issuer of a security interest in the leases, then the issuer will have a
perfected security interest therein.
The servicer will be required to take such action as is required to perfect the
issuer's interest in the leases. If the issuer, the servicer or the indenture
trustee, while in possession of the leases, sells or pledges and delivers such
leases to another party, in violation of the indenture and the assignment and
servicing agreement, there is a risk that the purchaser could acquire an
interest in such leases having priority over the issuer's interest and thus the
related asset pool's interest.
UCC financing statements will not be filed to perfect any security interest in
the Equipment. Thus, in the event of repossession and resale of equipment, it
may be subject to a senior lien, with such senior lienholder possibly entitled
to full payment of its debt before any payments could be made on the debt owed
to the issuer.
Optional Redemption
The notes may be redeemed in whole by the servicer on any payment date on which
the aggregate discounted lease principal balance is less than 10% of the
aggregate discounted lease principal balance as of the closing date so long as
the servicer deposits or causes to be deposited in the collection account the
aggregate amounts owed on the notes as of such payment date.
Material Federal Income Tax Consequences
Dewey Ballantine LLP, special tax counsel to the issuer and counsel to the
underwriter, is of the opinion that the notes will be characterized as debt for
federal income tax purposes.
For additional information concerning the application of federal income tax
laws, you should read the section titled "Material Federal Income Tax
Consequences" herein.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus, we expect that pension, profit-sharing or
other employee benefit plans, as well as individual retirement accounts and
certain types of Keogh Plans, may purchase the notes. Investors should consult
with their counsel regarding the applicability of the provisions of ERISA before
purchasing a note.
Rating of the Notes
The notes must receive at least the following ratings from [the rating
agencies]:
For additional information concerning the ratings, you should read the section
titled "Ratings" herein.
S-11
<PAGE>
RISK FACTORS
In addition to the risk factors discussed in the Prospectus,
prospective offered Noteholders should consider, among other things, the
following additional factors in connection with the purchase of the notes:
Risk of Downgrade of Initial Ratings It is a condition to the issuance of the
Assigned to Notes notes that they receive the ratings from
the rating agencies set forth in the
summary under the heading "rating of the
notes." A rating is not a recommendation
to purchase, hold or sell the notes,
inasmuch as such rating does not comment
as to market price or suitability for a
particular investor. The ratings of the
notes address the likelihood of the
timely payment of interest on and the
ultimate repayment of principal of the
notes pursuant to their respective terms.
There is no assurance that a rating will
remain for any given period of time or
that a rating will not be lowered or
withdrawn entirely by a rating agency if
in its judgment circumstances in the
future so warrant. The ratings of the
notes are based primarily on the rating
agencies' analysis of the leases and the
equipment, and, with respect to the
[class A] notes, the subordination
provided by the subordinate notes.
Transfer of Servicing May Delay If IOS Capital were to cease acting as
Payments servicer, delays in processing payments
on the leases an information in respect
thereof could occur and result in delays
in payments to the noteholders.
Risks Associated with Inability IOS Capital, as originator or as
of IOS Capital to Reacquire Leases servicer, as the case may be, will make
and the Related Equipment representations and warranties with
respect to certain matters relating to
the leases. In certain circumstances, IOS
Capital will be required to reacquire
from the asset pool leases with respect
to which such representations and
warranties have been breached. In the
event that IOS Capital is incapable of
complying with its obligations to
reacquire the leases and no other party
is obligated to perform or satisfy such
obligations, the noteholders may be
subject to delays in receiving payments
and suffer loss of their investment in
the notes.
Geographic Concentrations of Leases As of the statistic calculation date,
obligors with respect to approximately
[[ ]%, [ ]% and [ %] ] of the leases were
located in the States of [ ],
respectively. To the extent adverse
events or economic conditions were
particularly severe in such geographic
regions or in the event an obligor or
group of obligors under the leases in
such geographic regions were to
experience financial difficulties due to
the economic conditions specific to such
obligor's region, the delinquency and
loss
S-12
<PAGE>
experience of the leases could be
adversely impacted with a potential
negative effect on the timing or ultimate
payment of the amounts due to the
noteholders. The originator is unable to
determine and has no basis to predict,
with respect to any state or region,
whether any such events have occurred or
may occur, or to what extent any such
events may affect the leases or the
repayment of amounts due under the notes.
Accordingly, adverse economic conditions
or other factors particularly affecting
these states could adversely affect the
delinquency, loss or repossession
experience of the asset pool with respect
to the leases. See the "Leases" herein.
S-13
<PAGE>
THE ASSET POOL
The Asset Pool will consist of (i) a pool of Leases, (ii) all moneys
(including accrued interest) due thereunder on or after the Cut-off Date, (iii)
such amounts as from time to time may be held in one or more accounts
established and maintained by the Servicer pursuant to the related Transaction
Document, as described below, (iv) the Seller's interests (other than ownership
interests), in the Equipment relating to such pool of Leases, (v) the rights of
the Issuer under the Assignment and Servicing Agreement and (vi) interest earned
on certain short-term investments held by the Issuer. The Asset Pools will not
have any residual interest in the equipment underlying an operating lease.
The Equipment underlying the Lease Receivables included in the Asset
Pool generally will be limited to personal property which is leased or financed
by the Originator to the Lessee pursuant to Leases which either are "chattel
paper" (as defined in the Uniform Commercial Code) or are leases that are not
treated materially differently from "chattel paper" for purposes of title
transfer, security interests or remedies on default. The Asset Pool will not
have any residual interest in the Equipment after the related Lease Receivable
has been paid in full.
The Lease Receivables will be acquired by the Seller from the
Originator under an Assignment and Servicing Agreement among the Seller, the
Originator and the Issuer (the "Assignment and Servicing Agreement").
Contemporaneously, the Lease Receivables will be transferred by the Seller to
the Issuer pursuant to the Assignment and Servicing Agreement. The Leases
included in the Asset Pool will be selected from Leases held by the Originator
based on the criteria described in the Prospectus under "The Leases--Eligible
Leases."
On or prior to the Closing Date on which the Notes are delivered to the
holders of the Notes (the "Noteholders"), the Issuer will form the Asset Pool by
(i) acquiring Lease Receivables pursuant to the Assignment and Servicing
Agreement between the Issuer and the Seller and (ii) entering into an Indenture
with an Indenture Trustee, relating to the issuance of the Notes, secured by the
Asset Pool.
The Lease Receivables comprising the Asset Pool will generally have
been originated by the Originator or acquired by the Originator in accordance
with the Originator's specified underwriting criteria. The underwriting criteria
applicable to the Lease Receivables included in the Asset Pool is described in
all material respects under the heading "IOS Capital's Leasing Business" in the
Prospectus.
THE ISSUER
The Issuer is a Delaware limited liability company all of the
membership interest in which will be held by the Seller. The Issuer was
organized solely for the limited purpose of engaging in the type of transactions
described herein and any activities incidental to and necessary or convenient
for the accomplishment of such purposes and is restricted by its organizational
documents and under the Assignment and Servicing Agreement from engaging in
other activities. In addition, its organizational documents and the Assignment
and Servicing Agreement it is required to operate in a manner such that it
should not be consolidated in the bankruptcy estate of the Originator or its
Affiliates in the event that one of them becomes subject to bankruptcy or
insolvency proceedings. The Issuer's address is 1738 Bass Road, Macon, Georgia
31210
The Issuer does not have, nor is it expected in the future to have, any
significant assets other than the Asset Pools. The Servicer with respect to any
series of Notes may be the Originator or another affiliate of the Issuer. As
described under "Description of the Transaction Documents -- Acquisition of the
Leases Pursuant to an Assignment and Servicing Agreement", in addition to the
acquisition of Lease
S-14
<PAGE>
Receivables from the Seller, the Issuer may acquire Lease Receivables through or
from an affiliate of the Originator.
The Issuer will pledge its interest in the Lease Receivables to the
Indenture Trustee for the benefit of an Asset Pool and issue the Notes pursuant
to an indenture between the between the Issuer and the Indenture Trustee (the
"Indenture").
If the protection provided to the Noteholders of a given class by the
subordination of another Class of Notes is insufficient, the Issuer must rely
solely on the payments from the Lessees on the related Leases, and the proceeds
from the sale of Equipment which secures or is leased under the Defaulted
Leases. In such event, certain factors may affect such Issuer's ability to
realize on the collateral securing such Leases, and thus may reduce the proceeds
to be distributed to the Noteholders.
THE LEASES
Portfolio Parameters
As described below, Leases in the aggregate shall be required to comply
with certain portfolio concentration criteria (the "Portfolio Concentration
Criteria"): [more information will be provided upon the structuring of the
transaction]
The Lease Receivable Statistical Information
Following is certain statistical information relating to the Lease
Receivable pool, calculated as of the Calculation Date and assuming a discount
rate of [ ]%. Certain columns may not total 100% due to rounding.
S-15
<PAGE>
DISTRIBUTION OF LEASES BY DISCOUNTED LEASE BALANCE
<TABLE>
<CAPTION>
Sum of Discounted Percentage of Aggregate
Discounted Lease Balances Number of Leases Lease Balances Discounted Lease Balance
- ------------------------- ---------------------- --------------------- ----------------------------
Less Than
Greater Than or Equal to
- -------------------------- --------------------------
<S> <C> <C> <C>
$ 1 $ 5,000
5,000 10,000
10,000 15,000
15,000 20,000
20,000 25,000
25,000 30,000
30,000 35,000
35,000 40,000
40,000 45,000
45,000 50,000
50,000 55,000
55,000 60,000
60,000 65,000
65,000 70,000
70,000 75,000
75,000 80,000
80,000 85,000
85,000 90,000
90,000 95,000
95,000 100,000
100,000 150,000
150,000 200,000
200,000 250,000
250,000 300,000
300,000 350,000
350,000 400,000
400,000 450,000
450,000 500,000
500,000 600,000
600,000 750,000
Total.................................................................... 100%
</TABLE>
S-16
<PAGE>
DISTRIBUTION OF THE LEASES BY STATE
<TABLE>
<CAPTION>
Number Sum of Discounted Lease Percentage of Aggregate
State of Leases Balances Discounted Lease Balance
- -------------------------------- ------------- ------------------------- --------------------------
<S> <C> <C> <C>
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington, D.C.
West Virginia
Wisconsin
Wyoming
</TABLE>
S-17
<PAGE>
DISTRIBUTION OF LEASES BY REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage of
Percentage of Discounted Discounted Original Original
Number of Number of Present Value Percent Value Equipment Equipment
Remaining Term Leases Leases of Leases of Leases Cost Cost
- ------------------------------ --------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- ---------------------------------------------------------------------------------------------------------------------
Total...................... 100.00% 100.00% 100.00%
=====================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage of
Percentage of Discounted Discounted Original Original
Number of Number of Present Value Percent Value Equipment Equipment
Original Term Leases Leases of Leases of Leases Cost Cost
- ------------------------------ --------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- ---------------------------------------------------------------------------------------------------------------------
Total...................... 100.00% 100.00% 100.00%
=====================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY CLASSIFICATION TYPE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage of
Percentage of Discounted Discounted Original Original
Classification Number of Number of Present Value Percent Value Equipment Equipment
Type Leases Leases of Leases of Leases Cost Cost
- ------------------------------ --------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Finance Lease
Operating Lease
- ---------------------------------------------------------------------------------------------------------------------
Total...................... 100.00% 100.00% 100.00%
=====================================================================================================================
</TABLE>
S-18
<PAGE>
DISTRIBUTION OF FINANCE LEASES BY PURCHASE OPTION
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage of
Percentage of Discounted Discounted Original Original
Purchase Number of Number of Present Value Percent Value Equipment Equipment
Option Leases Leases of Leases of Leases Cost Cost
- ------------------------------ --------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nominal Buyout
Fair Market Value
Fixed Purchase Option
- ---------------------------------------------------------------------------------------------------------------------
Total...................... 100.00% 100.00% 100.00%
=====================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage of
Percentage of Discounted Discounted Original Original
Equipment Number of Number of Present Value Percent Value Equipment Equipment
Type Leases Leases of Leases of Leases Cost Cost
- ------------------------------ --------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Total...................... 100.00% 100.00% 100.00%
=====================================================================================================================
</TABLE>
S-19
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Notes will be applied by the Issuer
to the acquisition of the related Lease Receivables from the Seller and applied
by the Seller to the acquisition thereof from the Originator.
THE ORIGINATOR
IOS Capital, Inc. ("IOS Capital" or the "Originator"), formerly known
as IKON Capital, Inc., was formed in 1987 to provide lease financing to
customers of IKON Office Solutions, Inc. ("IKON"). The Originator is a
wholly-owned subsidiary of IKON. The Originator's corporate headquarters are
located at 1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208. The Originator's
securities are registered under the 1934 Act and is subject to the reporting
requirements of the 1934 Act and, in accordance therewith, files reports and
other information with the Securities and Exchange Commission (the
"Commission"). The Originator filed an Annual Report on Form 10-K for the fiscal
year ending September 30, 1999 and a Quarterly Report on Form 10-Q for the
three-month period ending December 31, 1999. A copy of the reports, including
the exhibits thereto, will be provided without charge to any person to whom this
Offering Circular is delivered upon written request. Requests for such copies
should be directed to IOS Capital, Inc., 1738 Bass Road, P.O. Box 9115, Macon,
Georgia 31208, Attn: Harry Kozee.
Loss and Delinquency Experience
Delinquencies remained at a consistent level for fiscal 1998 and 1997.
During this two-year period, accounts classified as current (less that 30 days
past due) ranged from 85% and 91% of the total portfolio balance on a monthly
basis. The aging of the Originator's lease portfolio receivables at September
30, 1999 (excluding $275 million of net lease receivables sold under an asset
securitization agreement being serviced by the Originator) was as follows:
The following table sets forth amounts of leases held in Originator's
lease servicing portfolio and the combined delinquency and foreclosure
experience of leases in the servicing portfolio for the periods indicated:
[Tables to be provided]
THE SELLER
IKON Receivables-1,LLC, the Seller, is a wholly-owned bankruptcy
remote subsidiary of IOS Capital, Inc. The Seller was organized for the limited
purpose of engaging in the type of transactions described herein and any
activities incidental to and necessary or convenient for accomplishment of such
purposes and is restricted by its organizational documents and under the
Assignment and Servicing Agreement from engaging in other activities. In
addition, its organizational documents and the Assignment and Servicing
Agreement require that it operate in a manner such that it should not be
consolidated in the bankruptcy estate of IOS Capital, Inc. or its affiliates in
the event that one of them becomes subject to bankruptcy or insolvency
proceedings. The Seller's address is 1738 Bass Road, Macon, Georgia 31210.
S-20
<PAGE>
THE INDENTURE TRUSTEE
General
The Indenture Trustee, [_________] is a banking corporation organized
under the laws of ________. The Indenture Trustee may resign, subject to the
conditions set forth below, at any time upon written notice to the Issuer and
the Servicer, in which event the Servicer will be obligated to appoint a
successor Indenture Trustee. If no successor Indenture Trustee shall have been
so appointed and have accepted such appointment within 30 days after the giving
of such notice of resignation, the resigning Indenture Trustee may petition a
court of competent jurisdiction for the appointment of a successor Indenture
Trustee. Any successor Indenture Trustee shall meet the financial and other
standards for qualifying as a successor Indenture Trustee under the Indenture.
The Servicer may and shall at the direction of the Noteholders evidencing more
than 25% of the aggregate outstanding note principal balances of all classes of
notes (the "Percentage Interests") may, also remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture
and fails to resign after written request therefor.
Duties and Immunities of the Indenture Trustee
The Indenture Trustee will make no representations as to the validity
or sufficiency of the Assignment and Servicing Agreement, the Notes (other than
the authentication thereof) or of any Lease Receivable or related document and
will not be accountable for the use or application by the Servicer or the Issuer
of any funds paid to the Issuer in consideration of the sale of any Notes. If no
Event of Servicing Termination has occurred, then the Indenture Trustee will be
required to perform only those duties specifically required of it under the
Assignment and Servicing Agreement. However, upon receipt of the various
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments required to be furnished to it, the Indenture Trustee will be
required to examine them to determine whether they conform as to form to the
requirements of the Assignment and Servicing Agreement.
No recourse is available based on any provision of the Assignment and
Servicing Agreement, the Notes or any Lease Receivable or assignment thereof
against [_________], in its individual capacity, and [_________] shall not have
any personal obligation, liability or duty whatsoever to any Noteholder or any
other person with respect to any such claim and such claim shall be asserted
solely against the Servicer or any indemnitor, except for such liability as is
determined to have resulted from the Indenture Trustee's own negligence or
willful misconduct.
The Indenture Trustee will be entitled to receive, pursuant to the
priority set forth in the Indenture, (a) reasonable compensation for its
services (the "Indenture Trustee Fee"), (b) reimbursement for its reasonable
expenses and (c) indemnification for loss, liability or expense incurred without
negligence or bad faith on its part, arising out of performance of its duties
thereunder ((b) and (c) collectively, the "Indenture Trustee Expenses").
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture to be entered into
by the Issuer and the Indenture Trustee. The Servicer will provide a copy of the
Indenture to subsequent Noteholders without charge on written request addressed
to it at 1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208 Attn: Harry Kozee.
S-21
<PAGE>
General
The obligations evidenced by the Notes are recourse to the assets
pledged to the relevant Asset Pool only and are not recourse to the Originator,
the Seller, the Servicer, the Indenture Trustee, the Issuer, or any other
Person.
The Issuer will agree in the Indenture and in the respective Notes to
pay to the Noteholders (i) an amount of principal equal to the Initial Note
Principal Balance and (ii) monthly interest at the times, from the sources and
on the terms and conditions set forth in the Indenture and in the respective
Notes.
Collections
The Indenture Trustee shall deposit the following funds into the
Collection Account ("Available Funds"), which funds received on or prior to the
last day of the prior calendar month (the "Calculation Date") shall be available
for distribution, pursuant to the Indenture, on the next succeeding Payment
Date:
(a) Lease Payments (as defined below) due before each Cut-Off
Date;
(b) recoveries from Defaulted Leases (as defined below) to the
extent the Originator has not substituted Substitute Leases for such
Defaulted Leases (except to the extent required to reimburse
unreimbursed Servicer Advances);
(c) proceeds from repurchases by the Seller of Leases as a
result of breaches of representations and warranties by the Seller
(such breach a "Warranty Event") to the extent the Originator has not
substituted Substitute Leases for such Leases;
(d) proceeds from investment of funds in the Collection
Account;
(e) Casualty Payments (as defined below);
(f) Termination Payments (as defined below); and
(g) Servicer Advances (as defined below).
A "Lease Payment" is each periodic installment of rent payable by a
Lessee under a Lease. Casualty Payments, Termination Payments, prepayments of
rent required pursuant to Termination Payments, prepayments of rent required
pursuant to the terms of a Lease at or before the commencement of the term of
such lease, payments becoming due before each Cut-Off Date and supplemental or
additional payments required by the terms of such a Lease with respect to taxes,
insurance, maintenance, or other specific charges shall not be considered Lease
Payments hereunder.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair of any item of Equipment subject thereto which results, in
accordance with the terms of such Lease (such event a "Casualty Loss"), in a
reduction in the number or amount of any future Lease Payments due thereunder or
in the termination of the Lessee's obligation to make future Lease Payments
thereunder.
A "Termination Payment" is a payment payable by a Lessee under a Lease
upon the early termination of such Lease ( such Lease, an "Early Termination
Lease") (but not on account of a casualty or a Lease default) which may be
agreed upon by the Servicer, acting in the name of the beneficial owner thereof,
and the Lessee.
S-22
<PAGE>
"Defaulted Leases" are (i) Leases that have become more than 120 days
delinquent or (ii) Leases that have been charged off by the Servicer.
Distributions
Unless an Event of Default and acceleration of the Notes has occurred
or a Restricting Event has occurred, on or before each Payment Date, the
Servicer will instruct the Indenture Trustee to apply or cause to be applied the
Available Funds to make the following payments in the following priority:
(a) [ ];
(b) [ ];
(c) [ ];
(d) [ ]; and
(e) [ ].
If an Event of Default and acceleration of the Notes has occurred or a
Restricting Event has occurred, on or before each Payment Date, the Servicer
will instruct the Indenture Trustee to apply or cause to be applied the
Available Funds to make the following payments in the following priority:
(a) [ ];
(b) [ ];
(c) [ ];
(d) [ ];
(e) [ ];
(f) [ ]; and
(g) [ ].
"Restricting Events" with respect to any series include the following:
(a) an event of default by the Servicer under the Assignment
and Servicing Agreement;
(b) Events of Default (as defined herein); and
(c) replacement of the Servicer.
"Outstanding Principal Amount" means with respect to any Class of Notes
and any date of determination the difference between (a) the initial principal
amount of the Notes of such Class at the issuance thereof, less (b) all amounts
previously distributed with respect to such Class as principal.
S-23
<PAGE>
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the Leases may be in the form of scheduled payments, prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any such prepayments or liquidations will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Leases. In general, the rate of such
payments may be influenced by a number of other factors, including general
economic conditions. The rate of Principal Payments with respect to any series
may also be affected by any repurchase of the underlying Leases by the
Originator pursuant to the Assignment and Servicing Agreement. In such event,
the application of the repurchase price will decrease the aggregate Discounted
Lease Balance, causing the corresponding weighted average life of the Notes to
decrease.
Subject to certain limitations, the Originator will have the option to
substitute Eligible Leases having similar characteristics (each a "Substitute
Lease") for (i) Non-Performing Leases, (ii) Leases subject to repurchase as a
result of a breach of a representation and warranty by the Originator under the
Transaction Documents which breach has not been cured following discovery/notice
of such breach (each, a "Warranty Lease") and (iii) Leases following a
modification or adjustment to the terms of such Lease (each an "Adjusted
Lease"). The Originator may substitute Substitute Leases for Non-Performing
Leases, Adjusted Leases or Warranty Leases in amounts not to exceed ______% of
the Discounted Present Value of the Leases as of the original Cut-Off Date. In
addition, in the event of a Lease that terminates early or which has been
prepaid in full (each, an "Early Termination Lease"), the Originator will have
the option to transfer an additional lease of similar characteristics (each, an
"Additional Lease"). The Substitute Leases and Additional Leases must have a
Discounted Present Value of not less than the Discounted Present Value of the
Leases being replaced and the monthly payments on the Substitute Leases or
Additional Leases must be at least equal to those of the replaced Leases through
the term of such replaced Leases. In the event that a Substitute Lease is not
provided for a Non-Performing Lease, the Discounted Present Value of the Leases
in the Asset Pool will be reduced in an amount at least equal to the Discounted
Present Value of the Non-Performing Lease, plus any delinquent payments.
The effective yield to holders of the Notes will depend upon, among
other things, the rate at which principal is paid to such Noteholders. The
after-tax yield to Noteholders may be affected by lags between the time interest
income accrues to Noteholders and the time the related interest income is
received by the Noteholders.
The Scheduled Final Payment Date for the Notes is [ ]. This date is the
date on which the note principal balance would be reduced to zero, assuming,
among other things, (i) prepayments with respect to the Leases are received at a
rate of [ ]% CPR and (ii) the modeling assumptions apply. The weighted average
life of the Notes is likely to be shorter than would be the case if payments
actually made on the Leases conformed to the foregoing assumptions, and the
final Payment Date with respect to the Notes could occur significantly earlier
than such final scheduled Payment Dates due to defaults, and because the
Originator is obligated to repurchase Leases in the event of breaches of
representations and warranties.
"Weighted average life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Notes will be
influenced by the rate at which principal payments (including Lease payments and
prepayments) on the Leases are made. Principal payments on Leases may be in the
form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to a default or other
dispositions of the Leases). The weighted average lives of the Notes will also
be influenced by delays associated with realizing on Defaulted Leases. The
prepayment
S-24
<PAGE>
model used in this Prospectus Supplement, the "Conditional Prepayment Rate" or
"CPR", represents an assumed annualized rate of prepayment relative to the then
outstanding balance on a pool of Leases. The CPR assumes that a fraction of the
outstanding Lease Pool is prepaid on each Payment Date, which implies that each
Lease in the Lease Pool is equally likely to prepay. This fraction, expressed as
a percentage, is annualized to arrive at the CPR for the Lease Pool. The CPR
measures prepayments based on the outstanding principal on the previous Payment
Date. The CPR further assumes that all Leases are the same size and amortize at
the same rate and that each Lease will be either paid as scheduled or prepaid in
full.
Weighted Average Lives of the Notes
The following tables set forth the percentages of the initial principal
amount of the Notes that would be outstanding after each of the dates shown,
assuming a CPR of [ ]%.
PERCENTAGE OF INITIAL NOTE
PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
Notes
Prepayment Speed (CPR)
Payment 0% 2% 4% 6% 8%
Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Closing
Date
- ----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years)
</TABLE>
The Leases will not have the characteristics assumed above, and there
can be no assurance that (i) the Leases will prepay at any of the rates shown in
the tables or at any other particular rate or will prepay proportionately or
(ii) the weighted average lives of the Notes will be as calculated above.
Because the rate of distributions of principal of the Notes will be a result of
the actual amortization (including prepayments) of the Leases, which will
include Leases that have remaining terms to stated maturity shorter or longer
than those assumed, the weighted average lives of the Notes will differ from
those set forth above, even if all of the Leases prepay at the indicated
constant prepayment rates.
The effective yield to Noteholders will depend upon, among other
things, the price at which such Notes are purchased, and the amount of and rate
at which principal, including both scheduled and Lease Payments thereof, is paid
to the Noteholders. See "Special Considerations -- Maturity and Prepayment
Considerations" in the Prospectus.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes certain terms of each Transaction
Document pursuant to which the Asset Pool will be created and the Notes will be
issued. For purposes of this Prospectus Supplement, the term "Transaction
Document" as used with respect to the Asset Pool means, collectively, and except
as otherwise specified, any and all agreements relating to the establishment of
the Asset Pool, the servicing of the related Lease Receivables and the issuance
of the Notes, including, without limitation, the Indenture, pursuant to which
any Notes shall be issued. The summary does not purport to be complete. It is
qualified in its entirety by reference to the provisions in each respective
Transaction Document.
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Acquisition of the Lease Receivables Pursuant to an Assignment and Servicing
Agreement
On the Closing Date, the Lease Receivables will be acquired by the
Seller from the Originator under the Assignment and Servicing Agreement among
the Seller, the Originator and the Issuer. Contemporaneously, the Lease
Receivables will be transferred by the Seller to the Issuer pursuant to the
Assignment and Servicing Agreement. The Leases included in the Asset Pool will
be selected from Leases held by the Originator based on the criteria described
under "The Leases--Eligible Leases."
On or prior to the date of issuance of the Notes to the holders of
Notes, the Issuer will form the Asset Pool by (i) acquiring Lease Receivables
pursuant to the Assignment and Servicing Agreement and (ii) entering into an
Indenture with the Trustee, relating to the issuance of the Notes.
Repurchase Obligation
The Originator will be obligated to repurchase from the Issuer its
interest in any Lease transferred to the Issuer or pledged to an Indenture
Trustee on behalf of the Noteholders, in which any representation or warranty of
the Originator under the Transaction Documents has been breached, which breach
has not been cured following discovery of such breach (each a "Warranty Lease").
In addition, the Originator may from time to time reacquire certain Leases or
substitute other Substitute Leases for such Leases subject to specified
conditions set forth in the related Transaction Documents.
The Indenture Trustee will have possession of the Leases and the
documents in the files relating thereto (the "Lease Files") not retained by the
Servicer for its servicing purposes, and the Servicer will retain copies of any
other documents which relate to the Lease Receivables, any related evidence of
insurance and payment, delinquency and related reports maintained by the
Servicer in the ordinary course of business with respect to each Lease
Receivable. Prior to transfer of the Lease Receivables to the Issuer, the
Servicer will cause its electronic ledger to be marked to show that such Lease
Receivables have been transferred to the Seller and then to the Issuer, and the
Originator and the Seller will file UCC financing statements reflecting the sale
and assignment of the Lease Receivables in certain jurisdictions, as required by
the Assignment and Servicing Agreement. See "Certain Legal Aspects of the Lease
Receivables" in the Prospectus.
Substitutions
Pursuant to the Transaction Documents, in addition to Warranty Leases,
the Originator will have the option to substitute Eligible Leases for Defaulted
Leases, Leases which have undergone modifications or adjustments to the terms of
such leases (each an "Adjusted Lease"), and Leases that have prepaid, up to a
maximum of [ %] of the aggregate Discounted Lease Balance of the Leases
contributed to the pool, provided the following conditions are met:
(i) At the time of substitution, the substituted Eligible
Leases have in the aggregate Discounted Lease Balances of not less than
the Discounted Lease Balance of the Leases being replaced;
(ii) Substitutions by the Originator shall be approximately
the same weighted average life of the remaining originally scheduled
Lease payments in the pool and shall not extend the final maturity of
the pool beyond the original maturity of the initial Leases in the
pool.
Each Substitute Lease shall be a Lease, satisfying certain
representations and warranties set forth in the Indenture and the Assignment and
Servicing Agreement (a "Substitute Lease") as of the related Substitute Lease
Cut-Off Date. In addition, the following conditions must be satisfied:
S-26
<PAGE>
(i) as of the related Substitute Lease Cut-Off Date, the
Substitute Leases then being transferred have in the aggregate
Discounted Lease Balances that are not less than the aggregate of the
Discounted Lease Balances of the Leases being replaced; and
(ii) no substitution shall be permitted if, after giving
effect to such substitution, (x) the sum of the Lease Payments on all
Leases due in any Remittance Period thereafter would be less than (y)
the sum of the Lease Payments which would otherwise be due in such
Remittance Period.
[Security Interest]
The Noteholders will be secured by [the security will be described when
the structuring of the transaction is available].
Representations and Warranties of the Originator and the Seller
[The representation and warranties will be described when the
structuring of the transaction is available.]
Indemnification
[The indemnification provisions will be described when the structuring
of the transaction is available.]
The Accounts
The Servicer will maintain an account (the "Collection Account") in the
name of the Indenture Trustee to which all Lease Payments received under each
Lease (including any residual proceeds and late charges), any recoveries for
Defaulted Leases if not substituted for, proceeds of Casualty Losses and Early
Termination Leases, and payments by the Seller in connection with a Warranty
Event will be directed within at least two (2) Business Days of receipt by the
Servicer, but excluding any Excluded Amounts.
Amounts exempt from deposit into the Collection Account ("Excluded
Amounts"), including (i) collections attributable to any taxes, fees or other
charges imposed by any governmental authority; (ii) collections representing
reimbursements of insurance premiums or payments for services that were not
financed by the Seller; (iii) other non-contract or rental charges reimbursable
to the Servicer in accordance with the Servicer's customary policies and
procedures; and (iv) collections with respect to repurchased Leases.
Available Funds
Available Funds for any Payment Date shall include funds received on or
prior to the related Calculation Date, net of any Excluded Amounts, will be
available for distribution by the Indenture Trustee on each Payment Date and
will include:
(i) Lease Payments (including residual proceeds and late
charges);
(ii) Servicer Advances;
S-27
<PAGE>
(iii) recoveries on Defaulted Leases to the extent the
Servicer has not substituted an Eligible Lease for such Defaulted
Lease;
(iv) proceeds from a Casualty Loss or Early Termination Lease;
(v) proceeds from repurchases by the Seller due to a Warranty
Event; and
(vi) proceeds from investment of funds in the Collection
Account.
Priority of Payments
On each Payment Date prior to the occurrence and continuance of an
Event of Default and acceleration of the Notes or a Restricting Event, Available
Funds will be distributed by the Indenture Trustee in the following order of
priority:
(i) [ ];
(ii) [ ];
(iii) [ ];
(iv) [ ];
(v) [ ].
On each Payment Date after the occurrence and during the continuance of
an Event of Default or Restricting Event, Available Funds will be distributed by
the Indenture Trustee in the following order of priority:
(i) [ ];
(ii) [ ];
(iii) [ ];
(iv) [ ];
(v) [ ];
(vi) [ ];
(vii) [ ];
(viii) [ ].
Any one or more of the following will be a Restricting Event under the
Indenture with respect to the Notes:
(i) an event of default by the servicer under the Assignment
and Servicing Agreement;
(ii) Events of Default (as defined herein);
S-28
<PAGE>
(iii) replacement of the servicer;
Interest
[Information on the interest payable to Noteholders will be provided in
accordance with the structuring of the transaction.]
Principal
[Information on the principal payable to Noteholders will be provided
in accordance with the structuring of the transaction.]
Withholding
The Indenture Trustee is required to comply with all applicable federal
income tax withholding requirements respecting payments to Noteholders of
interest with respect to the Notes. The consent of Noteholders is not required
for such withholding. In the event the Noteholder is other than DTC, then in the
event that the Indenture Trustee does withhold or causes to be withheld any
amount from interest payments or advances thereof to any Noteholders pursuant to
federal income tax withholding requirements, the Indenture Trustee shall
indicate the amount withheld annually to such Noteholders.
Optional Redemption
The Servicer will have the option, subject to certain conditions, to
redeem all, but not less than all, of the Notes as of any Payment Date on which
the aggregate Discounted Lease Balance as of the related Calculation Date is
less than or equal to 10 % of the aggregate Discounted Lease Balance as of the
Cut-off Date.
The Servicer
IOS Capital, Inc. in its servicing role (the "Servicer") will service
the Lease Receivables comprising an Asset Pool pursuant to the Assignment and
Servicing Agreement. The Servicer may delegate its servicing responsibilities to
one or more sub-Servicers, but will not be relieved of its liabilities with
respect thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Transaction Documents An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Noteholders will constitute a Servicer Default by the Servicer under the
related Transaction Documents.
Assignment and Servicing Agreement
The Assignment and Servicing Agreement will further detail the
procedures for Lease Payment collections and Equipment remarketing. In general,
the Servicer in accordance with the Servicer's policies and procedures will
manage, service, administer, collect and enforce the Leases on behalf of the
Issuer in accordance with its customary procedures, and shall have full power
and authority to do any and all things in connection with such managing,
servicing, administration, and collection that it deems necessary or desirable.
The Servicer's duties will include collection and posting of all payments,
responding to inquiries of obligors regarding the Leases, investigating
delinquencies and making required Servicer Advances, remitting payments to the
Collection Account in a timely manner, furnishing monthly and annual statements
with respect to collections and payments, using commercially reasonable efforts
to
S-29
<PAGE>
dispose of any related Equipment that has been pledged to the Indenture Trustee
upon the expiration or termination of a Lease, and using its best efforts to
maintain the perfected security interest of the Indenture Trustee on behalf of
the Noteholders and their respective interests, if any, in the related Equipment
to the extent required herein.
Remittance and Other Servicing Procedures
[Information will be provided in accordance with the structuring of the
transaction.]
Servicing Compensation and Payment of Expenses
For its servicing of the Leases, the Servicer will receive servicing
compensation including a monthly fee (the "Servicer Fee") for each Remittance
Period (payable on the next succeeding Payment Date) and Servicing Charges.
The servicing compensation will compensate the Servicer for customary
equipment Lease servicing activities to be performed by the Servicer for the
Issuer, additional administrative services performed by the Servicer on behalf
of the Issuer, and expenses paid by the Servicer on behalf of the Issuer.
The Servicer, as an independent contractor on behalf of the Issuer for
the benefit of the Noteholders, will be responsible for the managing, servicing
and administering the Lease Receivables and enforcing and making collections on
the Leases and for the enforcing of any security interest in any item of
Equipment, all as set forth in the Assignment and Servicing Agreement. The
Servicer's responsibilities will include collecting and posting of all payments,
responding to inquiries of Lessees, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the Indenture Trustee,
making advances (each a "Servicer Advance"), providing appropriate federal
income tax information for use in providing information to Noteholders,
collecting and remitting sales and property taxes on behalf of taxing
authorities and maintaining the perfected security interest of the Issuer in the
Equipment and the Leases.
Reports to Noteholders
On or prior to each Payment Date, the Servicer or the Indenture
Trustee, as applicable, will forward or cause to be forwarded to each holder of
record of such class of Notes a statement or statements with respect to the
Asset Pool setting forth the information specifically described in the
Transaction Document (such statements, collectively, the "Servicer Reports")
which generally will include the following information:
(i) the amount of the distribution with respect to each class
of Notes;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Asset Pool balance, if applicable, as of the close of
business on the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool
Factor for each Class of Notes after giving effect to all payments
reported under (ii) above on such Payment Date;
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<PAGE>
(vi) the amount paid to the Servicer, if any, with respect to
the related Remittance Period; and
(vii) the amount of the aggregate purchase amounts for Lease
Receivables that have been reacquired, if any, for such Remittance
Period.
Each amount set forth pursuant to clauses (i), (ii), (iii) and (v) with
respect to the Notes of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Notes, as applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Issuer, or the Servicer on behalf of the
Issuer, will provide to the Noteholders a statement containing the amounts
described in (ii) and (iii) above for that calendar year and any other
information required by applicable tax laws, for the purpose of the Noteholders'
preparation of federal income tax returns.
The "Note Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Remittance Period and will make
available on the related Calculation Date representing the ratio of (x) the note
principal balance which will be outstanding on the next Payment Date (after
taking into account all distributions to be made on such Payment Date) to (y)
the Initial Note Principal Balance.
The "Pool Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Remittance Period and will make
available on the related Calculation Date representing the ratio of (x) the
aggregate Discounted Lease Balance as of the end of the immediately preceding
Remittance Period to (y) the aggregate Discounted Lease Balance as of the
Cut-Off Date.
In addition, by _______ of each calendar year following any year during
which the Notes are outstanding, commencing ________, _____, the Indenture
Trustee will furnish to each Noteholder of record at any time during such
preceding calendar year, information as to the aggregate of amounts reported
pursuant to items (a) and (b) above for such calendar year to enable Noteholders
to prepare their federal income tax returns.]
Evidence as to Compliance
The Assignment and Servicing Agreement requires that the Servicer cause
an independent accountant (who may also render other services to the Servicer)
to prepare a statement to the Indenture Trustee and each Rating Agency dated not
later than [ ], and annually as of the same month thereafter, to the effect that
the independent accountant has examined the servicing procedures, manuals,
guides and records of the Servicer and the accounts and records of the Servicer
relating to the Lease Receivables and the Lease Files (which procedures,
manuals, guides and records shall be described in one or more schedules to such
statement), that such firm has compared the information contained in the
Servicer's certificates delivered in the relevant period with information
contained in the accounts and records for such period and that, on the basis of
such examination and comparison, nothing has come to the independent
accountant's attention to indicate that the Servicer has not, during the
relevant period, serviced the Lease Receivables in compliance with such
servicing procedures, manuals and guides and in the same manner required by the
Servicer's standards and with the same degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned by it, that such accounts and records have not been maintained in
accordance with the Assignment and Servicing Agreement, that the information
contained in the Servicer's certificates does not reconcile with the information
contained in the accounts and records or that such certificates, accounts and
records have
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<PAGE>
not been properly prepared and maintained in all material respects, except in
each case for (a) such exceptions as the independent accountant shall believe to
be immaterial and (b) such other exceptions as shall be set forth in such
statement. On or before [ ] of each year, commencing on [ ], the Servicer shall
deliver to the Indenture Trustee and each Rating Agency a copy of such
statement.
The Assignment and Servicing Agreement will also provide for annual
delivery of a report (the "Supplementary Report") by the Servicer to the
Indenture Trustee not later than 120 days after the end of each fiscal year,
signed by an authorized officer of the Servicer (a "Servicing Officer") on
behalf of the Servicer and dated as of the last day of such fiscal year, stating
that (a) a review of the activities of the Servicer and the Servicer's
performance under the Assignment and Servicing Agreement for the previous
12-month period has been made under such Servicing Officer's supervision and (b)
nothing has come to such Servicing Officer's attention to indicate that an Event
of Servicing Termination has occurred, or, if such Event of Servicing
Termination has so occurred and is continuing, specifying each such event known
to the officer, the nature and status thereof and the steps necessary to remedy
such event.
The Assignment and Servicing Agreement will provide that the Servicer,
upon request of the Indenture Trustee, will furnish to the Indenture Trustee
such underlying data necessary for administration of the Trust or enforcement
actions as can be generated by the Servicer's existing data processing system.
Certain Matters Relating to the Servicer
The Assignment and Servicing Agreement will provide that the Servicer
may not resign from its obligations and duties as Servicer thereunder, except
upon a determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Event of Servicing Termination as discussed below.
Events of Servicing Termination
[Information will be provided upon the structuring of the transaction.]
[Rights Upon an Event of Servicing Termination]
[Information will be provided upon the structuring of the transaction.]
Events of Default
[Information will be provided upon the structuring of the transaction.]
Early Retirement of the Notes
[Information will be provided upon the structuring of the transaction.]
Amendment
Each of the Transaction Documents may be amended by the parties
thereto, without the consent of the Noteholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Transaction Documents or of modifying in any manner the rights of such
Noteholders; provided that such action will not, in the opinion of counsel
satisfactory to the Indenture Trustee materially and adversely affect the
interests of any such Noteholder. The Transaction Documents may also be amended
by the Issuer, the Servicer, and/or the Indenture Trustee, as applicable, with
the consent of the holders of Notes evidencing at least a majority of the voting
rights of such then outstanding
S-32
<PAGE>
Notes for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transaction Documents or of modifying
in any manner the rights of such Noteholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the related Lease Receivables
or distributions that are required to be made for the benefit of such
Noteholders or (ii) reduce the aforesaid percentage of the Notes which are
required to consent to any such amendment, without the consent of all of the
Noteholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following paragraphs together with the description of federal
income tax consequences detailed in the Prospectus under the heading "Material
Federal Income Tax Consequences" sets forth a general discussion of the material
anticipated federal income tax considerations to investors of the purchase,
ownership and disposition of the notes offered hereby. The discussion is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change. The discussion below and the Prospectus does not purport to
deal with all federal tax considerations applicable to all categories of
investors, some of which may be subject to special rules. Investors should
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
notes.
The following discussion addresses lease-backed notes such as the Notes
that are intended to be treated for federal income tax purposes as indebtedness
secured by the underlying Lease Receivables.
[Additional disclosure will be provided based on the structuring of the
transaction.]
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code for those persons. ERISA also imposes
certain duties on persons who are fiduciaries of plans subject to ERISA,
including the duty to make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing plan documents. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a plan is considered to be a
fiduciary of the plan (subject to certain exceptions not here relevant).
Employee benefit plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA or Section 4975 of the Code; however, those plans may be
subject to comparable federal, state or local law restrictions.
Some transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of an employee benefit plan subject to ERISA or the
Code, or an individual retirement account (an "IRA"), or any entity whose
underlying assets are deemed to be assets of an employee benefit plan or an IRA
by reason of the employee benefit plan's or the IRA's investment in that entity
(each a "Benefit Plan"). Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of the Issuer
would be treated as plan assets of a Benefit Plan for the purposes of ERISA and
the Code only if the Benefit Plan acquired an "equity interest" in the Issuer
and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
S-33
<PAGE>
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for these purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its Affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In this case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by banks,
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by "in-house asset
managers"; and PTCE 84-14, regarding transactions by "qualified professional
assets managers". Each investor using the assets of a Benefit Plan which
acquires the Notes, or to whom the Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Notes will be
covered by a Department of Labor class exemption.
Due to the complexity of the applicable rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited transactions, any
Benefit Plan fiduciary considering the purchase of a Note with plan assets
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to the investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
The sale of Notes to a Benefit Plan is in no respect a representation
by the Issuer or the Underwriters that this investment meets all relevant legal
requirements with respect to investments by Benefit Plans generally or by a
particular Benefit Plan, or that this investment is appropriate for Benefit
Plans generally or any particular Benefit Plan.
RATINGS
It is a condition to the issuance of the Notes that the [Class A] Notes
be rated [ ] by _______ and [ ] by _________, and the [_______] Notes be rated [
] by ________ and [ ] by ______. The ratings are not a recommendation to
purchase, hold or sell the Notes, inasmuch as such ratings do not comment as to
market price or suitability for a particular investor. Each rating may be
subject to revision or withdrawal at any time by the assigning Rating Agency.
There is not assurance that any such rating will continue for any period of time
or that it will not be lowered or withdrawn entirely by the Rating Agency if, in
its judgment, circumstances so warrant. A revision or withdrawal of such rating
may have an adverse effect on the market price of the Notes. The rating of the
Notes addresses the likelihood of the timely payment of interest and the
ultimate payment of principal on the Notes pursuant to their terms. The rating
does not address the rate of prepayments that may be experienced on the Leases
and, therefore, does not address the effect of the rate of prepayments on the
return of principal to the Noteholders.
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<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") for the sale of the Notes dated [ ],
the Issuer has agreed to sell and [ ______ ] (the "Underwriter") has agreed to
purchase, the Notes. The Issuer is affiliated with IOS Capital.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions therein, to purchase all the Notes offered hereby if
any of such Notes are purchased.
The Underwriter has advised the Issuer that it proposes to offer the
Notes purchased by the Underwriter for sale from time to time in one or more
negotiated transactions or otherwise, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. The
Underwriter may effect such transactions by selling such Notes to or through a
dealer, and such dealer may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters or purchasers of the
Notes for whom they may act as agent. Any dealers that participate with the
Underwriter in the distribution of the Notes purchased by the Underwriter may be
deemed to be underwriters, and any discounts or commissions received by them or
the Underwriter, and any profit on the resale of Notes by them or the
Underwriter may be deemed to be underwriting discounts or commissions under the
Securities Act of 1933, as amended (the "Securities Act"). Noteholders should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
notes at levels above those which might otherwise prevail in the open market.
Such stabilizing, if commenced, may be discontinued at any time.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and the related Prospectus Supplement and, if given or made, such
information or representations must not be relied upon. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances create
an implication that there has been no change in the affairs of the Seller or the
Issuer or any affiliate thereof or the Leases since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any state
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so to anyone to whom it
is unlawful to make such offer or solicitation.
The Transaction Documents and the Underwriting Agreement provide that
the Servicer and Issuer will indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriter may be required to make in respect thereof.
For further information regarding any offer or sale of the Notes
pursuant to this Prospectus Supplement and the Prospectus, see "Underwriting" in
the Prospectus.
LEGAL OPINIONS
Certain legal matters will be passed upon for the Issuer by Don H. Liu,
Esq., General Counsel of the Originator and IKON Office Solutions, the parent
company of the Originator, and for the Underwriters by Dewey Ballantine LLP, New
York, New York. As of the date of this Prospectus, Mr. Liu is a full-time
employee and an officer of IKON Office Solutions and a beneficial owner of
shares of common stock of IKON Office Solutions and options to purchase shares
of common stock of IKON Office Solutions.
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<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Lease...............................................................................................S-24
Adjusted Lease.................................................................................................S-26
Available Funds................................................................................................S-22
Benefit Plan...................................................................................................S-34
Calculation Date...............................................................................................S-22
Casualty Loss..................................................................................................S-22
Casualty Payment...............................................................................................S-22
Collection Account.............................................................................................S-27
Commission................................................................................................S-2, S-20
Conditional Prepayment Rate....................................................................................S-24
CPR............................................................................................................S-24
Defaulted Leases...............................................................................................S-23
Early Termination Lease........................................................................................S-22
Excluded Amounts...............................................................................................S-27
IKON...........................................................................................................S-20
Indenture Trustee Expenses.....................................................................................S-21
Indenture Trustee Fee..........................................................................................S-21
IOS Capital....................................................................................................S-20
Assignment and Servicing Agreement.............................................................................S-14
Leases.........................................................................................................S-12
Note Factor....................................................................................................S-31
Noteholders....................................................................................................S-14
Notes...........................................................................................................S-1
Originator.....................................................................................................S-20
Outstanding Principal Amount...................................................................................S-23
Percentage Interests...........................................................................................S-21
Plan Assets Regulation.........................................................................................S-34
Pool Factor....................................................................................................S-31
Portfolio Concentration Criteria...............................................................................S-15
PTCE...........................................................................................................S-34
Restricting Events.............................................................................................S-23
Securities Act.................................................................................................S-35
Servicer.......................................................................................................S-29
Servicer Advance...............................................................................................S-30
Servicer Fee...................................................................................................S-30
Servicer Reports...............................................................................................S-30
Servicing Officer..............................................................................................S-32
Substitute Lease...............................................................................................S-27
Supplementary Report...........................................................................................S-32
Termination Payment............................................................................................S-22
Transaction Document...........................................................................................S-25
Underwriting Agreement.........................................................................................S-35
Warranty Event.................................................................................................S-22
Warranty Lease.................................................................................................S-26
</TABLE>
S-36
<PAGE>
[DB Draft of November 21, 1999]
Prospectus
$______________
IKON Receivables, LLC Lease-Backed Notes
Issuer Issuable in Series
<TABLE>
<S> <C>
You should read the section From time to time the issuer may sell a series of its
entitled "Risk Factors" notes that --
starting on page 7 of this
prospectus and consider . will represent debt obligations solely of the
these factors before making issuer; and
a decision to invest in the
notes. . will consist of one or more classes on terms to be
determined at the time of sale.
The notes of each series will
be debt solely of the issuer The assets backing the notes may consist of any
and will be payable only from combination of --
the pledged assets of the
issuer and any credit . leases;
enhancement for such series.
. installment sale contracts;
Retain this prospectus for
future reference. This . rental stream obligations;
prospectus may not be used
to consummate sales of . monies received relating to the leases, agreements,
securities unless accompanied contracts and obligations;
by the prospectus supplement
relating to the offering of . funds on deposit in one or more accounts; and
such securities.
. one or more forms of credit enhancement.
The terms of your series of notes are
described in this prospectus and the
accompanying prospectus supplement.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is ______, 1999.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Important Information about this Prospectus and the Accompanying Prospectus Supplement.. 3
Prospectus Summary....................................................................... 4
Risk Factors............................................................................. 7
Where You Can Find More Information...................................................... 12
The Issuer............................................................................... 13
The Asset Pools.......................................................................... 13
Management's Discussion and Analysis of Financial Condition.............................. 14
Directors and Executive Officers of the Manager of the Issuer............................ 14
The Leases............................................................................... 15
Pool Factors............................................................................. 18
Use of Proceeds.......................................................................... 18
The Originator's Leasing Business........................................................ 18
The Trustee.............................................................................. 22
Description of the Notes................................................................. 23
Description of the Transaction Documents................................................. 29
Legal Aspects of the Lease Receivables................................................... 35
Material Federal Income Tax Consequences................................................. 37
Ratings.................................................................................. 41
ERISA Considerations..................................................................... 41
Plan of Distribution..................................................................... 41
Legal Opinions........................................................................... 42
Experts.................................................................................. 42
Index To Financial Statements............................................................ 43
Index Of Terms........................................................................... 47
</TABLE>
2
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Important Information about this
Prospectus and the Accompanying Prospectus Supplement
If the terms of your series of notes vary between this prospectus and
the accompanying prospectus supplement, you should rely on the information in
the prospectus supplement.
The prospectus supplement for your series of notes will state among
other things:
. the aggregate principal amount, interest rate and
authorized denominations of the notes;
. specific information concerning the characteristics of the
lease receivables;
. the terms of any credit enhancement with respect to the
notes;
. information concerning any other assets backing the notes,
including any reserve fund;
. the final scheduled payment date of the notes;
. how and when principal is to be paid on the notes on each
payment date, the timing of the application of principal
and the order of priority of the applications of the
principal to the respective classes of such notes;
. the federal income tax characterization of the notes;
. the terms of any subordination relating to the notes;
. the terms of any cross-collateralization relating to the
notes;
. the terms of any redemptions and the related redemption
prices relating to the notes;
. servicing terms relating to the notes;
. the presence of any prefunding feature relating to the
notes;
. the length and terms of any revolving period relating to
the notes; and
. additional information on the plan of distribution of the
notes.
3
<PAGE>
Prospectus Summary
. This summary highlights select information from this prospectus and does
not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the offering
of the notes, read carefully this entire prospectus and the accompanying
prospectus supplement.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding. To understand all of the terms of
the offering, carefully read this entire document and, in particular, the
full description of these calculations, cash flows and other information
in this prospectus.
Lease-Backed Notes
Issuable in Series
Issuer
IKON Receivables, LLC, a Delaware limited liability company.
Originator
IOS Capital, Inc., a Delaware corporation formerly known as IKON Capital Inc.
and a wholly-owned subsidiary of IKON Office Solutions, Inc.
Seller
IKON Receivables-1, LLC, a Delaware special purpose limited liability company.
Servicer
The servicer will be IOS Capital unless otherwise specified in the related
prospectus supplement.
Trustee
For any series of notes, the trustee named in the related prospectus supplement.
The Notes
. The notes of each series will be secured solely by office equipment leases or
contracts and related assets. The assets will be pledged by the issuer to a
trustee under an indenture for the benefit of noteholders of that series.
. The transaction documents relating to each series of notes will describe the
rights of each of the related classes of notes to the funds derived from the
related asset pool.
. The notes are fixed income securities, having a principal balance and a
specified interest rate.
. Each class of notes may have a different interest rate, which may be a fixed
or floating interest rate. The related prospectus supplement will specify the
interest rate for each series or class of notes, or the initial interest rate
and the method for determining subsequent changes to the interest rate.
. A series may include one or more classes of notes which are:
. stripped of regular interest payments and entitled only to principal
distributions, with disproportionate, nominal or no interest
distributions; or
. stripped of regular principal payments and entitled only to interest
distributions, with disproportionate, nominal or no principal
distributions.
. A series of notes may include two or more classes of notes with different
terms including different interest rates and different timing, sequential order
or priority of payments, amount of principal or interest or both.
. A series may provide that distributions of principal or interest or both on
any class may be made:
. upon the occurrence of specified events;
. in accordance with a schedule or formula; or
4
<PAGE>
. on the basis of collections from designated portions of the related asset
pool.
. Any series may include one or more classes of notes which will not distribute
accrued interest but rather will add the accrued interest to the note principal
balance, or nominal balance, in the manner described in the related prospectus
supplement.
. A series may include one or more other classes of notes that are senior to
one or more other classes of notes in respect of distributions of principal and
interest and allocations of losses on the related asset pool.
The Asset Pools
. As specified in the related prospectus supplement, the pledged pool of assets
securing a series of notes may consist of:
. leases which may include any combination of leases, leases intended as
security agreements, installment sale contracts or rental stream
obligations, together with certain monies due on these leases and
agreements and related guarantees;
. interests other than ownership interests in the underlying equipment and
related property, together with the proceeds from disposal of the
equipment, if any;
. amounts held in any collection, reserve, prefunding or other accounts
established pursuant to the transaction documents;
. proceeds and recoveries on insurance policies and the disposition of
repossessed equipment;
. credit enhancement for an asset pool or any class of notes; and
. interest earned on certain short-term investments.
. If the related prospectus supplement specifies, the trustee may acquire
additional leases and equipment during a specified pre-funding period following
the issuance of the notes from monies in a pre-funding account.
. If the related prospectus supplement specifies, the notes may have a
revolving period. During a revolving period, the issuer may acquire additional
leases and interests in equipment from the proceeds of payments on existing
lease payments. The notes may not pay principal during this period.
Payment Date
As described in the related prospectus supplement, the notes will pay principal
and/or interest on specified dates. Payment dates will occur monthly,
quarterly, or semi-annually.
Due Period
The calendar month preceding the month in which a payment date occurs is the due
period. As the related prospectus supplement will more fully describe, the
servicer will remit collections received in respect of the due period to the
trustee prior to the related payment date. The collections may be used to fund
payments to noteholders on such payment date or to acquire additional lease
receivables.
Record Date
The related prospectus supplement will describe a date preceding the payment
date, as of which the issuer or its paying agent will fix the identity of the
holders of the notes. Noteholders whose identities are fixed on this date will
receive payments on the next succeeding payment date.
Registration of Notes
The issuer will initially issue the notes as global notes registered in the name
of Cede & Co. as nominee of The Depository Trust Company, or another nominee.
Noteholders will not receive definitive notes representing their interests,
except in certain limited circumstances described in the related prospectus
supplement.
Credit Enhancement
. As described in the related prospectus supplement, credit enhancement for an
asset pool or any class of notes may include any one or more of the following:
. a policy issued by an insurer specified in the related prospectus
supplement;
. overcollateralization;
. subordination of certain classes of notes;
. a reserve account;
. letters of credit;
5
<PAGE>
. credit or liquidity facilities;
. third party payments or other support; and
. cash deposits or other similar arrangements.
. The prospectus supplement will describe any limitations and exclusions from
coverage.
Optional or Mandatory Termination
. Under the circumstances described in this prospectus and the related
prospectus supplement, the servicer, the seller, the issuer or other entities
may, at their respective options, cause the early retirement of a series of
notes at the price or prices indicated in the related prospectus supplement.
. The related prospectus supplement may describe circumstances under which the
issuer, servicer or other entities will be required to retire early all or any
portion of a series of notes. An indenture may require these parties to solicit
competitive bids for the purchase of the related asset pool or otherwise.
Tax Considerations
For federal income tax purposes, Dewey Ballantine LLP, special tax counsel to
the issuer, will render an opinion upon issuance of a series of notes that the
notes will be treated as debt and the issuer will not be treated as an
association (or publicly traded partnership) taxable as a corporation. You
should consult your tax advisors.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus and the related prospectus supplement,
pension, profit-sharing or other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans may purchase the notes.
You should consult with your counsel regarding the applicability of the
provisions of ERISA before purchasing a note.
Ratings
. The issuer will not issue the notes unless a rating agency rates them in one
of the four highest rating categories.
. You must not assume that the rating agency will not lower, qualify or
withdraw its rating.
6
<PAGE>
Risk Factors
You should carefully consider, among other things, the following risk factors
before deciding to invest in the notes offered by this prospectus.
<TABLE>
<S> <C>
You May Not Be Able to Sell Your There is currently no public market for the notes. If no public market
Notes develops, you may not be able to sell your notes. The underwriters expect
to make a market in the notes but they are not required to do so. There
is no assurance that any market will be created or, if created, will
continue.
Prepayments and Related Reinvestment In the case of notes purchased at a discount, you should consider the risk
May Reduce Your Yield that slower than anticipated rates of prepayments on the leases could
result in an actual yield that is less than the anticipated yield.
Conversely, you should consider the risk that in the case of notes
purchased at a premium, a faster than the anticipated rate of prepayments
could result in an actual yield that is less than the anticipated yield.
Be aware that you bear the risk of reinvesting unscheduled distributions
resulting from prepayments of the notes.
The rate of payment of principal is unpredictable because the rate on the
notes will depend on, among other things, the rate of payment on the
underlying leases. In addition to the normally scheduled payments on the
leases, payments may come from a number of different sources, including
the following:
. prepayments permitted by the servicer;
. payments as a result of leases which are defaulted;
. payments as a result of leases accelerated by the servicer;
. payments due to loss, theft, destruction or other casualty; and
. payments upon repurchases by IOS Capital on account of a breach of
representations and warranties.
Subject to limitations, IOS Capital may elect to reinvest the proceeds of
a lease which has been partially or fully repaid or upgraded in one or
more additional leases and to substitute leases for defaulted, repurchased
or modified or adjusted leases. Reinvestments and substitutions may
affect the rate or amount of payments on the leases as a whole, the rate
at which funds are distributed on the notes and the yield to noteholders.
The rate of early terminations of leases due to prepayments and various
non-payments may be influenced by a variety of economic and other factors.
For example, adverse economic conditions and natural disasters such as
floods, hurricanes, earthquakes and tornadoes may affect prepayments.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
No Ownership Interest in the Neither the issuer nor the trustee for the benefit of noteholders will
Equipment; Certain Security have any ownership interest in any equipment, including any residual
Interests are Not Perfected and interest in the equipment at the end of the related lease term. Also, IOS
Other Creditors May Have Rights to Capital has not filed and will not file financing statements to perfect
the Equipment any security interest it may have in any of the equipment. Although any
security interest of IOS Capital in the equipment will be assigned by IOS
Capital to the seller and by the seller to the issuer, none of IOS
Capital, the seller, the issuer nor the trustee will have a perfected
security interest in the equipment against lessees. This lack of a
perfected security interest in the equipment may result in other creditors
of the related lessees acquiring rights in the equipment superior to those
of the issuer or the trustee and may adversely affect the ability of the
issuer or the trustee on behalf of noteholders to recover any monies on
the equipment following a lease default. This could reduce the funds
available to pay the notes. Accordingly, noteholders should not rely on
the sale, release or other disposition of any leased equipment for payment
on the notes.
State Laws and Other Factors May State laws impose requirements and restrictions on foreclosure sales and
Impede Recovery Efforts and Affect obtaining deficiency judgments and may prohibit, limit or delay
the Ability of the Issuer to Recoup repossession and sale of equipment to recover losses on non-performing
the Full Amount Due on the Leases leases.
Additional factors that may affect the issuer's ability to recoup the full
amount due on a lease include:
. the issuer's lack of any ownership interest in any of the equipment;
. the issuer's failure to file financing statements to perfect its security
interest in equipment against a lessee;
. depreciation;
. obsolescence;
. damage or loss of any item of equipment; and
. the application of federal and state bankruptcy and insolvency laws.
As a result, the noteholders may be subject to delays in receiving payments and
losses.
Possession of the Leases by and the Any insolvency by the issuer, the servicer, the originator or the seller,
Insolvency of the Issuer, while in possession of the leases may result in competing claims to
Originator, Seller or Servicer May ownership or security interests in the leases which could result in delays
Result in Reduced or Delayed in payments on the notes, losses to the noteholders or an acceleration of
Payments to Noteholders the repayment of the notes.
</TABLE>
8
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<TABLE>
<S> <C>
Commingling of Funds with IOS If bankruptcy or reorganization proceedings are commenced with respect to
Capital May Result in Reduced or the servicer, any funds then held by the servicer may be unavailable to
Delayed Payments to Noteholders noteholders. If those funds are not transferred to the trustee, as
required by the indenture, payments to noteholders could be delayed or
reduced if the servicer becomes bankrupt or insolvent.
Insolvency of IOS Capital or IKON In some circumstances, a bankruptcy of IOS Capital or IKON Receivables-1,
Receivables-1, LLC May Reduce LLC may reduce payments to noteholders. IOS Capital and IKON
Payments to Noteholders Receivables-1, LLC believe that each contribution of the leases should be
treated as an absolute and unconditional assignment.
However, in the event of an insolvency of IOS Capital or IKON
Receivables-1, LLC, a court or bankruptcy trustee could attempt to:
. recharacterize the contribution of the related leases by IOS Capital to IKON
Receivables-1, LLC as a loan from IKON Receivables-1, LLC to IOS Capital
secured by a pledge of the leases; or
. recharacterize the contribution of the related leases by IKON Receivables-1,
LLC to the issuer as a loan from the issuer to IKON Receivables-1, LLC
secured by a pledge of the leases; or
. consolidate the assets of the issuer with those of IOS Capital because IOS
Capital will indirectly own all of the membership interests in the issuer;
or
. consolidate the assets of the issuer with those of IKON Receivables-1, LLC
because IKON Receivables-1, LLC will own all of the membership interests
in the issuer.
If either recharacterization or consolidation were successful, the
bankruptcy trustee could repudiate any leases that are considered to be
operating leases for bankruptcy law purposes and all obligations relating
to such operating leases. An attempt to recharacterize the transactions,
even if unsuccessful, could result in delays in payments to you. If
either attempt were successful, the notes would be accelerated, and the
trustee's recovery on your behalf could be limited to the then current
value of the leases or the underlying equipment. Consequently, you could
lose the right to future payments and you may not receive your anticipated
principal and interest on the notes.
Although IOS Capital and IKON Receivables-1, LLC both believe that the
contribution of the leases should be treated as an absolute and
unconditional assignment, for accounting purposes the leases will be
treated as assets of IOS Capital on the tax return of its consolidated
group. This treatment of the assets might increase the risk of
recharacterization of the transfer to the issuer as a financing.
Transfer of Servicing May Delay If IOS Capital were to cease servicing the leases, delays in processing
Payments to Noteholders payments on the leases and information regarding lease payments could
occur. This could delay payments to the noteholders.
</TABLE>
9
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<TABLE>
<S> <C>
Default or Insolvency of Lessees May If lessees default on the leases, lease payments will decrease and funds
Reduce Payments to Noteholders available for payment to you will be reduced.
No Recourse Against Affiliates of There is no recourse against any affiliates of the issuer. The notes
the Issuer represent debt of the issuer payable solely from the related asset pool
and any applicable credit enhancement. If the lease payments, any other
assets pledged to secure the notes and any applicable credit enhancement
are insufficient to pay the notes in full, you have no rights to obtain
payment from IOS Capital or any of its affiliates other than the issuer.
The issuer is a limited liability company with limited assets.
Losses and Delinquencies on the We cannot guarantee that the delinquency and loss levels of leases in the
Leases May Differ From the asset pools will correspond to the historical levels the originator
Originator's Historical Loss and experienced on its equipment lease portfolio. There is a risk that
Delinquency Levels delinquencies and losses could increase or decline significantly for
various reasons including:
. changes in the federal income tax laws; or
. changes in the local, regional or national economies.
Risks Associated with Year 2000 The originator is faced with the task of completing its goals for
Compliance compliance in connection with the year 2000 issue. The year 2000 issue is
the result of certain computer programs being written using two digits to
define the applicable year. Any computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. Any such occurrence could result in major
computer system failure or miscalculations. Although the originator
reasonably believes that its servicing system will be year 2000 compliant
prior to the year 2000, it is presently engaged in various procedures to
determine if its computer systems and software, and those of its material
suppliers, customers, brokers and agents will be year 2000 compliant.
If the originator, any affiliate or any of their suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000
compliance, the originator's performance of its obligations under the
transaction documents, including servicing of the leases could be
adversely affected. This could result in delays in payments and in
processing payments on the leases and could cause a delay in distributions
to you.
The Addition and Substitution of If a significant number of leases are added or replaced, this could affect
Leases May Adversely Affect the rate at which funds are distributed on the notes and decrease the
Cashflow and May Decrease the Yield yield to noteholders. The transaction documents will permit IOS Capital
on the Notes under certain circumstances, to substitute or add qualifying leases. The
addition or substitution of leases may include leases that have different
payment due dates, installment amounts and maturity dates than the
existing or substituted leases.
IOS Capital may only add or substitute leases that meet qualifying
characteristics and conditions. The ability of IOS Capital to acquire
such leases depends upon its ability to originate enough leases that meet
the specified eligibility criteria. This may be affected by a variety of
social and economic factors, including interest rates, unemployment
levels, the rate of
</TABLE>
10
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<TABLE>
<S> <C>
inflation and public perception of economic conditions
generally. The addition or substitution of leases could increase the
geographic, equipment or other concentrations of the related asset pool.
Consequently, any adverse economic or social factors that particularly
affect a particular geographic area, certain types of equipment or other
concentrations of leases in the related asset pool may adversely affect
the performance of the asset pool, which, in turn, could affect the rating
of the notes.
Technological Obsolescence of If technological advances relating to office equipment cause leased
Equipment May Reduce Value of equipment to become obsolete, the value of the equipment will decrease.
Collateral This will reduce the amount of monies recoverable should the equipment be
sold following a lease default and you may not recover the full amount due
on your notes.
</TABLE>
11
<PAGE>
Where You Can Find More Information
The issuer or the servicer will file with the SEC all required annual,
quarterly and special reports, proxy statements and other information about the
notes. You can read and copy these documents at the public reference facility
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, DC 20549. You can also copy and inspect such reports, proxy
statements and other information at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus. Information that we file later with
the SEC will automatically update the information in this Prospectus. In all
cases, you should rely on the later information over different information
included in this Prospectus or the Prospectus Supplement. We incorporate by
reference any future annual, monthly and special SEC reports and proxy materials
filed by or on behalf the issuer until we terminate our offering of the notes.
We filed a registration statement relating to the notes with the SEC.
This Prospectus is part of the registration statement but the registration
statement includes additional information. As a recipient of this Prospectus,
you may request a copy of the registration statement and any document we
incorporate by reference, except exhibits to the documents (unless the exhibits
are specifically incorporated by reference), at no cost, by writing or calling
us at:
IOS Capital, Inc.
Attn: Harry Kozee
1738 Bass Road
P.O. Box 9115
Macon, GA 31208
(912) 471-2300
You should rely only on the information incorporated by reference or
provided in this prospectus or the accompanying Prospectus Supplement. We have
not authorized anyone else to provide you with different information. You
should not assume that the information in this Prospectus is accurate as of any
date other than the date on the cover page of this Prospectus or the
accompanying Prospectus Supplement.
You can find a listing of the pages where capitalized terms are
defined under "Index of Terms" beginning on page 47 in this Prospectus.
12
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The Issuer
IKON Receivables, LLC (the "Issuer") is a Delaware limited liability
company all of the membership interests in which will be held by IKON
Receivables-1, LLC, a special purpose Delaware limited liability company (the
"Seller"). All of the membership interests in the Seller will, in turn, be held
by IOS Capital, Inc. ("IOS Capital" or the "Originator"). The Issuer was
organized for the limited purpose of engaging in the transactions described
herein and any activities incidental to and necessary or convenient for the
accomplishment of such purposes and is restricted by its organizational
documents and certain agreements from engaging in other activities. In
addition, its organizational documents and certain agreements require it to
operate in a manner such that it should not be consolidated in the bankruptcy
estate of the Originator or its affiliates in the event that one of them becomes
subject to bankruptcy or insolvency proceedings. The Issuer's address is 1738
Bass Road, P.O. Box 9115, Macon, Georgia 31208.
The Issuer will from time to time sell a series of Notes consisting of
one or more classes on terms to be determined at the time of sale and described
in a related Prospectus Supplement. The Notes of each series will be secured
solely by the related Asset Pool (as defined herein). The Issuer does not have,
nor is it expected in the future to have, any significant assets other than the
Asset Pools. The servicer of any Asset Pool relating to any series of Notes may
be IOS Capital or another affiliate of the Issuer (IOS Capital or such other
servicer, in its capacity as servicer, the "Servicer").
The Issuer will pledge its interests in an Asset Pool to a Trustee in
respect of the related series of Notes pursuant to an Indenture between the
Issuer and such Trustee.
The balance sheet of the Issuer at ____, 1999 is attached as Exhibit 1
hereto.
The Asset Pools
The Notes of each series will be secured by a segregated pool of
equipment leases or contracts and related assets (an "Asset Pool"). The
property comprising each Asset Pool may include (i) a pool of leases, which may
include any combination of leases, leases intended as security agreements,
installment sale contracts or rental stream obligations (each, a "Lease"), (ii)
certain monies due under the Leases on or after a specified date (the "Cut-off
Date"), (iii) monies held from time to time in one or more accounts established
and maintained pursuant to the related Transaction Documents (as defined
herein), (iv) a security interest in the Seller's interests in the underlying
equipment and related property relating to such pool of Leases (such equipment
and related property, the "Equipment"), (v) the rights of the Issuer under the
Assignment and Servicing Agreement (as defined herein) relating to the Asset
Pool, and (vi) investment earnings on certain accounts created under the related
Indenture. The Leases, including the Issuer's security interest in the
underlying equipment and other property relating to the Leases, in an Asset Pool
are referred to as the "Lease Receivables."
The Issuer will not have and the Asset Pools will not include any
residual interest in any Equipment after the related Lease has been paid in
full.
The Equipment generally will be limited to personal property which is
leased or financed by the Originator to lessees (each a "Lessee" and,
collectively, "Lessees") pursuant to Leases which either are "chattel paper" (as
defined in the Uniform Commercial Code) or are Leases that are not treated
materially differently from "chattel paper" for purposes of title transfer,
security interests or remedies on default.
The Lease Receivables will be acquired by the Seller from the
Originator under an Assignment and Servicing Agreement among the Seller, the
Originator and the Issuer (the "Assignment and Servicing Agreement").
Contemporaneously, the Lease Receivables will be transferred by the Seller to
the Issuer pursuant to the Assignment and Servicing Agreement. The Leases
included in an Asset Pool will be selected from Leases held by the Originator
based on the criteria described under "The Leases--Eligible Leases."
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On or prior to the date of issuance of the Notes of any series to the
holders of Notes, the Issuer will form an Asset Pool by (i) acquiring Lease
Receivables pursuant to the related Assignment and Servicing Agreement and (ii)
entering into an Indenture with the Trustee, relating to the issuance of the
Notes.
The Leases in each Asset Pool will have been originated by the
Originator or acquired by the Originator in accordance with the Originator's
specified underwriting criteria. The material underwriting criteria applicable
to the Leases are described under "Originator's Leasing Business."
Management's Discussion and Analysis of Financial Condition
As of the date of this Prospectus, the Issuer has no operating
history. The net proceeds of the sale of the Notes will be used to fund any
applicable reserve or other accounts and to make distributions to the owner of
the Issuer. See "Use of Proceeds." The Issuer is prohibited by its Limited
Liability Company Agreement from engaging in business other than (i) the
purchase of equipment leases and Lease Receivables from IOS Capital and its
affiliates, (ii) the issuance of notes collateralized by its assets and (iii)
engaging in acts incidental, necessary or convenient to the foregoing and
permitted under Delaware law. The Issuer's ability to incur, assume or guaranty
indebtedness for borrowed money is also restricted by its Limited Liability
Company Agreement to only such activities that relate to the Lease Receivables.
Directors and Executive Officers of the Manager of the Issuer
The following table sets forth the executive officers and directors of
IKON Receivables Funding Inc., the manager of the Issuer ("Manager"), and their
ages and positions as of _____, 1999. Because the Issuer is organized as a
special purpose company and will be largely passive, it is expected that the
officers and directors of the Manager will participate in the management of the
Issuer only to a limited extent. Most of the actions related to maintaining and
servicing the assets will be performed by the Servicer.
- ---------------------------------------------------------------------------
Name Age Position
- ---------------------------------------------------------------------------
Robert McLain 73 President & Director
Patricia Donato 35 Secretary & Director
Joseph Churchman 62 Director
Robert C. Campbell 41 Director
Robert W. Grier 40 Director
Karin M. Kinney 38 Secretary
J. F. Quinn 44 Treasurer
Robert K. McLain has served as Director since being elected on January
20, 1999. Mr. McLain joined the Alco Standard Corporation in 1972 and served in
various positions including Assistant Corporate Controller, Controller and Vice
President until his retirement from the Company in 1991. From the time he
retired from Alco until September 30, 1998, he organized and managed Delaware
investment companies, which include subsidiaries of IKON Office Solutions, Inc.
and Unisource Worldwide, Inc., on a part-time basis.
Patricia A. Donato has served as Director since being elected on
January 20, 1999. Ms. Donato joined the Alco Standard Corporation as a Tax
Coordinator in 1988. Since January 1991, she has served as Office Manager, and
subsequently, Controller, for investment companies in Delaware, which include
subsidiaries of IKON Office Solutions, Inc. and Unisource Worldwide, Inc..
Joseph B. Churchman has served as Director since being elected on
January 20, 1999. Mr. Churchman joined Alco Standard Corporation in 1975 as
Corporate Accounting Manager. He subsequently served as Manager of Alco's Data
Services and as President of Alco Health Services, now known as Amerisource,
until his
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retirement in 1988. Currently, Mr. Churchman is a business consultant and serves
as a director of several Delaware investment companies.
Robert C. Campbell has served as Director since being elected on April
9, 1999. Mr. Campbell, the Co-founder and Managing Director of Entity Services
Group, L.L.C., advises corporations on structural and tax ramifications arising
from their holding companies. Mr. Campbell, a Certified Public Accountant, has
also served as a Tax Manager at KPMG LLP where he advised corporate clients on
tax planning and compliance issues. Prior to joining KPMG LLP, Mr. Campbell
worked at the captive-finance subsidiary of Sears Roebuck & Co.
Robert W. Grier has served as Director since being elected on April 9,
1999. Presently, Mr. Grier is Executive Vice President of Entity Services
Group, L.L.C. Mr. Grier has previously served as a Senior Tax Manager at KPMG
LLP, where he advised companies, ranging from closely-held to multi-national
corporations, on compliance and tax planning issues. Prior to joining KPMG LLP,
Mr. Grier was employed by Simon, Master & Sidlow, P.A., a Wilmington accounting
firm.
Karin M. Kinney has served as Secretary of IKON Office Solutions, Inc.
since 1996 and as Corporate Counsel since 1994. From 1987 through 1994, Ms.
Kinney served as Counsel.
J.F. Quinn has served as Treasurer for IKON Office Solutions, Inc.
from November 1997 to the present. Prior to assuming his current position, Mr.
Quinn served as Assistant Treasurer from January 1996 through November 1997 and
Manager, Foreign Exchange and Cash Management from June 1994 through January
1996. Before joining IKON Office Solutions, Inc. Mr. Quinn served as Manager,
Foreign Exchange for ARCO Chemical Company, Manager, Financial Services for the
Columbia Gas System, Inc. and Supervising Senior Auditor for Peat, Marwick,
Mitchell & Co.
The Lease Information with respect to the Lease Receivables in each
Asset Pool will be set forth in the related Prospectus Supplement, including the
composition of such Lease Receivables and the distribution of such Lease
Receivables by equipment type, payment frequency and Discounted Present Value of
the Leases (as defined herein) as of the applicable Cut-Off Date. As of the
date of issuance of the Notes of any series, no more than 5% of the Lease
Receivables in the related Asset Pool (as measured by Discounted Present Value
of the Leases) will deviate from the characteristics of the Lease Receivables
described in the related Prospectus Supplement.
Eligible Leases
All Leases have been originated or acquired in the ordinary course of
the Originator's business and comply with the Originator's credit and
collections policies. In addition, the following eligibility requirements apply
or will apply to all Leases on or prior to the related Cut-Off Date
(collectively, "Eligible Leases"):
(i) The Leases are valid and enforceable, and unconditionally obligate
the Lessee to make periodic Lease Payments (as defined herein) (including
taxes);
(ii) The Leases are noncancellable by the Lessee and do not contain
early termination options (except for Leases which contain early
termination or prepayment clauses that require the Lessee to pay all
remaining scheduled payments under such Lease upon early termination or
prepayment);
(iii) All payments payable under the Leases are absolute, unconditional
obligations of the Lessees;
(iv) All of the Leases require the Lessee or a third party to maintain
the Equipment in good working order, to bear all the costs of operating the
Equipment, including taxes and insurance relating thereto;
(v) The Leases do not materially violate any U.S. or state laws;
(vi) In the event of a Casualty (as defined herein), the Lessee is
required to pay at a minimum the outstanding principal or net book value of
the Leases and any applicable make-whole premium;
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(vii) The Leases have been transferred to the Issuer free and clear of
any liens and are assignable without prior written consent of the Lessee;
(viii) The Leases are U.S. dollar-denominated and the lessor and each
Lessee are located in the United States;
(ix) The Lease is not a consumer lease;
(x) No more than three percent (3%) of the Leases in any Asset Pool
will consist of Leases with government entities as the obligor;
(xi) The Lease is not subject to any guaranty by the Lessor or
Originator but may be subject to the guaranty of others;
(xii) No adverse selection was used in selecting the Lease for transfer
to the Issuer;
(xiii) The Lessee has represented to the Originator that it has
accepted the Equipment;
(xiv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xv) The Leases are not Non-Performing Leases (as defined herein); and
(xvi) Each Lease is not more than 61 days past due at time of transfer
to the Issuer.
Accounting Characteristics
The Leases consist of finance leases for accounting purposes. In a
finance lease, the lessor transfers substantially all benefits and risks of
ownership of the underlying equipment to the lessee. In accordance with
Statement of Financial Accounting Standards No. 13, a lease is classified as a
finance lease if the collectibility of lease payments are reasonably certain and
it meets one of the following criteria: (1) the lease transfers title and
ownership of the equipment to the lessee by the end of the lease term; (2) the
lease contains a bargain purchase option; (3) the lease term at inception is at
least 75% of the estimated life of the equipment; or (4) the present value of
the minimum lease payments is at least 90% of the fair market value of the
equipment at inception of the lease.
Although the Leases are finance leases for accounting purposes, some
or all of the Leases may be considered operating or non-finance leases for tax,
bankruptcy law or other purposes.
Discounted Present Value
The discounted present value of the Leases (the "Discounted Present
Value of the Leases"), at any given time, will equal the future remaining
scheduled payments (not including delinquent amounts, excess copy charges and
maintenance charges) from the Leases (including Non-Performing Leases),
discounted at the rate specified in the related Prospectus Supplement (the
"Discount Rate"). The discounted present value of the Performing Leases (the
"Discounted Present Value of the Performing Leases") equals the Discounted
Present Value of the Leases, reduced by all future remaining scheduled payments
on the Non-Performing Leases (not including delinquent amounts and maintenance
charges), discounted at the Discount Rate. The Discounted Present Value of the
Leases in respect of each Asset Pool as of the initial Cut-Off Date, calculated
at the Discount Rate, will be specified in the related Prospectus Supplement.
In connection with all calculations required to be made pursuant to an
Indenture or an Assignment and Servicing Agreement with respect to the
determination of the Discounted Present Value of the Leases at any given time,
it will be assumed that:
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(i) Lease Payments are due on the last day of the period from and
including the first day of each calendar month to and including the last
day of the calendar month immediately preceding the related Payment Date;
(ii) Lease Payments are discounted on a monthly basis using a 30-day
month and a 360-day year; and
(iii) Lease Payments are discounted to the last day of the calendar
month prior to the relevant calculation date.
In addition, each Indenture and Assignment and Servicing Agreement
will provide that any calculation of future remaining scheduled payments made on
or with respect to any date will be calculated after giving effect to any
payments received prior to the date of that calculation to the extent such
payments relate to scheduled payments due and payable with respect to the
related Due Period (as defined herein) and all prior Due Periods.
Delinquencies and Gross Losses
Information relating to the Originator's delinquency and gross loss
experience with respect to leases it has originated or acquired will be set
forth in the related Prospectus Supplement. This information may include, among
other things, the experience with respect to all leases in the Originator's
portfolio during specified periods, including leases not included in any Asset
Pool and leases which may not meet the criteria for selection as a Lease
Receivable for an Asset Pool. There can be no assurance that the delinquency,
repossession and net loss experience on any Asset Pool will be comparable to the
Originator's prior experience.
Maturity and Prepayment Considerations
If a Lease permits a prepayment, the amount of the prepayment,
together with accelerated payments resulting from defaults, will, subject to the
use of those monies to acquire additional or substituted leases pursuant to the
terms of the applicable Transaction Documents, shorten the weighted average life
of the pool of Lease Receivables and the weighted average life of the Notes.
The rate of prepayments on the Lease Receivables may be influenced by a variety
of economic, financial and other factors. In addition, under certain
circumstances, the Originator will be obligated to reacquire Lease Receivables
from the Issuer pursuant to the applicable Transaction Documents as a result of
breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the Notes, which results from
prepayments, will be borne entirely by the Noteholders.
Acquisition of Lease Receivables
The Lease Receivables underlying the Notes will be acquired pursuant
to an Assignment and Servicing Agreement (i) by the Seller from the Originator
and (ii) by the Issuer from the Seller.
The Issuer expects that each Lease Receivable so acquired will have
been originated or acquired by the Originator in accordance with the
underwriting criteria specified herein and sold to the Seller. See "The
Originator's Leasing Business - Credit Policies and Loss Experience" herein.
Pursuant to the Assignment and Servicing Agreement, the Originator will make
certain representations and warranties to the Seller in respect of the related
Lease Receivables and the benefit of such representations and warranties will be
assigned to the Issuer pursuant to the Assignment and Servicing Agreement. The
Issuer will assign all its rights under the Assignment and Servicing Agreement
to the Trustee for the benefit of the Noteholders with the result that the
Originator will be liable to the Issuer and the Trustee for defective or missing
documents or an uncured breach of the Originator's representations or
warranties.
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Pool Factors
A Noteholder's portion of the aggregate outstanding principal balance
of the related Class of Notes is the product of (i) the original outstanding
principal amount of such Noteholder's Notes and (ii) the applicable Pool Factor.
The "Pool Factor" for each Class of Notes will be a seven-digit decimal, which
the Servicer will compute on each determination date prior to each distribution
with respect to such Class of Notes, indicating the remaining outstanding
principal balance of such Class of Notes as of the applicable payment date (the
"Payment Date"), as a fraction of the initial outstanding principal balance of
such Class of Notes. Each Pool Factor will be initially 1.0000000, and
thereafter will decline to reflect reductions in the outstanding principal
balance of the applicable Class of Notes.
The Noteholders of record will receive reports on or about each
Payment Date concerning the payments received on the Lease Receivables, the
balance of Leases in the Asset Pool, the Pool Factor and various other items of
information. In addition, Noteholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law.
Use of Proceeds
The net proceeds from the sale of the Notes of each series will be
used to fund any applicable reserve or other accounts and to make distributions
by the Issuer to the Seller and by the Seller to the Originator.
The Originator's Leasing Business
The Originator, formerly known as IKON Capital, Inc., was formed in
1987 to provide lease financing to customers of IKON Office Solutions, Inc.
("IKON Office Solutions"). The Originator is a wholly-owned subsidiary of IKON
Office Solutions. The Originator's corporate headquarters are located at 1738
Bass Road, Macon, Georgia 31210. The Originator's securities are registered
under the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
Originator is subject to the reporting requirements of the 1934 Act and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Originator filed an Annual
Report on Form 10-K for the fiscal year ended September 30, 1999. A copy of the
reports, including the exhibits thereto, are available to the public on the
SEC's web site at http://www.sec.gov. Requests for copies or other information
should be directed to IOS Capital, Inc., 1738 Bass Road, P.O. Box 9115, Macon,
Georgia 31210, Attn: Harry Kozee.
IKON Office Solutions is a public company headquartered in Malvern,
Pennsylvania operating a large network of independent copier and office
equipment marketplaces in North America and the United Kingdom. IKON Office
Solutions has over 800 locations in the United States, Canada, the United
Kingdom, Germany, France, Denmark and Mexico. IKON Office Solutions also
provides equipment services and supplies, outsourcing and imaging services, such
as mailroom and copy center management, specialized document copying services
and electronic imaging and file conversion. IKON Office Solutions also offers
network consulting and design, hardware and software product interfaces,
computer networking, technology training and software solutions for the
networked office environment. IKON Office Solutions' fiscal 1999 gross revenues
were $5.5 billion.
The Originator is engaged in the business of arranging lease financing
exclusively for office equipment marketed by members of IKON Office Solutions'
independent dealer network ("IKON Marketplaces"), which sell and service copier
equipment and facsimile machines. The ability to offer lease financing on this
equipment through the Originator is considered a competitive marketing advantage
which more closely ties IKON Office Solutions to its customer base. During the
1999 fiscal year, 67% of new equipment sold by IKON marketplaces was
financed through the Originator. The Originator and IKON Office Solutions will
seek to increase this percentage in the future, as leasing enhances the overall
profit margin on equipment and is considered an important customer retention
strategy. For the fiscal years ended September 30, 1998 and 1997, the
Originator's operating revenues totaled approximately $289 million and $214
million, respectively, with net income of approximately $63 million and $43
million, respectively. For the fiscal year ended September 30, 1999, total
operating revenue equaled $299 million with net income of approximately $88
million.
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The equipment financed by the Originator consists of copiers,
facsimile machines, and related accessories and peripheral equipment, the
majority of which are produced by major office equipment manufacturers.
Currently 62% of the equipment financed by the Originator represents copiers,
21% facsimile machines, and 17% other equipment. Although equipment models vary,
IKON Office Solutions is increasingly focusing its marketing efforts on the sale
of higher segment equipment, such as copiers which produce 50 or more
impressions per minute.
The Originator's customer base (which consists of the end users of the
equipment) is widely dispersed, with the ten largest customers representing less
than 7.5% of the Originator's total lease portfolio as of September 30, 1999.
The typical new lease financed by the Originator during fiscal year 1999
averaged $17,739 in amount and 47 months in duration. Although 94% of the leases
in the Originator's total lease portfolio as of September 30, 1999 are scheduled
for regular monthly payments, customers are also offered quarterly, semi-annual
and other customized payment terms. In connection with its leasing activities,
the Originator performs billing, collection, property and sales tax filings, and
provides quotes on equipment upgrades and lease-end notification. The Originator
also provides certain financial reporting services to the IKON marketplaces,
such as a monthly report of marketplace increases in leasing activity and
related statistics.
Types of Leases
The lease portfolio of the Originator consists of direct financing
leases and funded leases, although the Leases to be included in any Asset Pool
will consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and IKON Marketplaces which have been
financed by the Originator. Direct financing leases are contractual obligations
between the Originator and the IKON Office Solutions customer and represent the
majority of the Originator's lease portfolio.
Funded leases and direct financing leases are structured as either tax
leases (from the Originator's perspective) or conditional sales contracts,
depending on the customer's needs. The customer decides which of the two
structures it desires. Under either structure, the total cost of the equipment
to the customer is substantially the same (assuming the exercise of the purchase
option).
Tax leases represented 96% of the Originator's total lease portfolio
as of September 30, 1999. The Originator is considered to be the owner of the
equipment for tax purposes during the life of these leases and receives the tax
benefit associated with equipment depreciation. Tax leases are structured with a
fair market value purchase option. Generally, the customer may return the
equipment, continue to rent the equipment or purchase the equipment for its fair
market value at the end of the lease.
Each tax lease has an assumed equipment residual value generally
ranging from 0% to 25% of original retail price, depending on model and term.
Although an Asset Pool may include tax leases with residual values, such
residual values will not be available for the benefit of the Noteholders of such
Asset Pool.
Conditional sale contracts account for the remaining 4% of the total
leases in the Originator's portfolio. Under these arrangements, the customer is
considered to be the owner of the equipment for tax purposes and is entitled to
receive any tax benefit associated with equipment depreciation. Each conditional
sales contract has an assumed residual value of 0%. Conditional sales contracts
are customarily structured with higher monthly lease payments than the tax
leases and have a $1 purchase option for the equipment at the end of the lease
term. Although the customer has the option of returning or continuing to rent
the equipment at lease-end, the customer almost always exercises the $1 purchase
option at the end of the lease term.
Credit Policies and Loss Experience
General. Prior to January 1998, IKON Office Solutions maintained a
decentralized credit policy. Each IKON marketplace was responsible for
developing and maintaining a credit policy that governed credit practices and
procedures. The policies contained minimum credit standards. Credit authority
levels were established and maintained locally with ultimate authority vested in
the district presidents and district CFOs. The
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Originator provided credit assistance through the support of an automated front-
end lease application tracking system ("CLAS").
Beginning in January 1998, IKON Office Solutions centralized its
credit policy. IKON Office Solutions' National Risk Management Policy
established minimum standards for all IKON Office Solutions leasing transactions
and vested all credit authority with the Originator. The policy uses a tiered
approach incorporating analyst reviews and credit scoring based on customer
exposure.
Origination. Lease packages are assembled by an IKON Office Solutions
sales representative and submitted to its respective IKON marketplace or
district processing center. The IKON marketplace and/or district have the
responsibility to review for accuracy and completeness prior to submission to
the Originator for funding. The marketplace and/or district administration
staff enter the lease applications into the CLAS program. The CLAS program
provides both the credit processing and lease administration module. When
applications have completed both modules, the documents have been reviewed and
the invoice has been prepared, the marketplace and/or district administration
staff forward the leasing package for funding review and transmit the CLAS
application to the Originator.
The Originator reviews all documents for completion, accuracy and
compliance. Any changes to the original document must be approved by the
Originator's contract and documentation review specialists. Each application is
checked for credit approval based on a comprehensive risk management policy.
When the transaction has completed final review the CLAS application is updated
and uploaded to the mainframe for activation, funding and invoicing.
Credit Processing. The Originator's credit process is segmented by
transaction size and approval authority. The "High Risk Review List" lists
industries or customers which are considered volatile and require special
attention. Guidelines are also established for automatic approvals which
require minimal information.
The IKON Office Solutions approval process is tiered based upon
customer exposure. Requests less than $50,000 use the CLAS credit scorecard for
approval. Credit scoring for smaller balance exposures provides the Originator
with the ability to adjust risk scores system-wide and monitor performance.
Exposures of $50,000 to $250,000 rely on the expertise of the Originator's
credit staff in analyzing and verifying information regarding bank
relationships, trade references, D&B Business Information Reports, and financial
statements and/or tax returns. Exposures of more than $250,000 benefit from the
combined resources of the districts and the Originator, while maintaining local
ownership of the customer. Ideally, the process will be transparent to the
customer yet provide the necessary and timely information required to understand
the risk factors of the exposure and those in the portfolio.
Based upon the segmented approach, the following approval authorities
have been established:
. Customer Service Professional and/or Customer Service Professional
Manager Dun & Bradstreet rated according to a decision matrix; up to
$50,000; no override authority.
. Business Credit Analysts
Up to high risk transactions.
. Senior Credit Analysts
Single signature for exposure up to $1 million; dual signature for
exposure up to $2 million.
. Director of Portfolio Quality & National Credit Coordinator
Single signature for exposure up to $2 million; dual signature for
exposure up to $5 million.
. Corporate
Exposure in excess of $5 million.
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Challenges to the recommendations of the Originator's credit analysts
will be the responsibility of the IKON Office Solutions district presidents. In
the event the analyst does not agree with the actions recommended by the IKON
Office Solutions district, the Originator senior management will be requested to
intervene. Sole credit authority remains with the Originator, not IKON Office
Solutions. The requirements for the above approval categories for exposures
under $250,000 may be overridden with approval of a Senior Credit Analyst,
National Credit Coordinator, Director of Portfolio Quality or President of the
Originator. Justifications will be entered into CLAS.
Collections. The following minimum standards for collection activity
and contact are established for the organization. At 31 days past due, the
initial collection call or letter is sent, dependent on account balance, to
inquire as to payment status, determine reason for delinquency, and attempt to
obtain payment date. At 45 days past due, the first or second collection call
is made, depending on account balance. At 61 days past due, the second or third
collection call is made and the contract is reviewed for guarantors or
additional avenues of collection. At this point the approach is to be firm and
the collector must obtain a full understanding of any dispute that may exist. A
Collection Manager is notified of any problems at 61 days past due. At 75 days
past due, a third or fourth collection call is made and if payment arrangement
is not agreed upon, possibility of contract cancellation, supply or equipment
retrieval or foreclosure is raised. At 90 days past due, the customer is
advised that the equipment/supplies will be picked up and contract canceled if
payment is not received immediately. An acceleration letter is generally sent
within 10 days if payment is not received. A notice of repossession letter is
sent out at day 105 to the customer and the originating marketplace. Accounts
are generally scheduled for charge off at 120 days past due unless extenuating
circumstances (approved by a Collection Manager) warrants delay and additional
collection efforts. These actions are required during the indicated time frame,
and may be accelerated to an earlier time as deemed appropriate. All collection
activities are documented.
Delinquency and Loss Experience. Historical delinquency information
for leases not charged off and loss information for leases owned and included in
IOS Capital's servicing portfolio will be set forth in each Prospectus
Supplement. See "The Leases--Delinquencies and Gross Losses".
Year 2000 Issues
State of Readiness. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Originator's computer programs or hardware that
have date-sensitive software or embedded technology may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The potential for a problem
exists with all computer hardware and software, as well as in products with
embedded technology; copiers and fax machines; security and HVAC systems;
voice/telephone systems; elevators, etc.
IKON Office Solutions has appointed a Year 2000 Corporate Compliance
Team, which has prepared a compliance program for the Originator and is
responsible for coordination and inspecting compliance activities in all
business units. The compliance program requires all business units and locations
in every country to inventory potentially affected systems and products, assess
risk, take any required corrective actions, test and certify compliance. IKON
Office Solutions' Year 2000 Testing and Certification Guidelines delineate the
Year 2000 compliance process, testing and quality assurance guidelines,
certification and reporting processes and contingency planning. An independent
consulting company has received the compliance program and any appropriate
recommendations have been implemented. All internal information technology
("IT") systems and non-IT systems have been inventoried. The Originator has
completed the assessment phase of its Year 2000 project. The remediation phase
is approximately 92% complete and the testing and validation phase is
approximately 87% complete. The Originator anticipates completing the Year 2000
project no later than December 10, 1999, which is prior to any anticipated
material impact on its operating systems.
Costs. The Originator will use both internal and external resources
to reprogram or replace, test and implement its IT and non-IT systems for Year
2000 modifications. The Originator does not separately track the internal costs
incurred on the Year 2000 project. Such costs are principally payroll and
related costs for its internal IT personnel. The total cost of the Year 2000
project, excluding these internal costs, is estimated at $1.4 million
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and is being funded through operating cash flows, all of which will be expensed
as incurred. Through September 1999, the Originator has expensed approximately
$893,000 related to its Year 2000 project.
Risk. The Issuer is advised by the Originator that the Originator
believes, based on the information currently available to the Originator, that
the most reasonably likely worst case scenario that could be caused by
technology failures relating to the Year 2000 issue could pose a significant
threat not only to the Originator, IKON Office Solutions, its customers and
suppliers, but to all businesses. Risks include:
. Legal risks, including customer, supplier, employee or shareholder
lawsuits over failure to deliver contracted services, product
failure, or health and safety issues.
. Loss of sales due to failure to meet customer quality expectations
or inability to ship products.
. Increased operational costs due to manual processing, date
corruption or disaster recovery.
. Inability to bill or invoice.
The cost of the Year 2000 project and the date on which IKON Office
Solutions and the Originator believe the Originator will complete the Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and costs of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
Contingency Plans. IKON Office Solutions' guidelines require that
contingency plans be developed and validated in the event that any critical
system cannot be corrected and certified before the system's failure date. The
Originator and IKON Office Solutions expect to have contingency plans in place
by December 10, 1999. In addition, IKON Office Solutions has formed a rapid
response team as part of its IT group that will respond to any operational
problems during the Year 2000 date change period.
Relation to Issuer. In the event that the Originator, any affiliate
or any of their suppliers, customers, brokers or agents do not successfully and
timely achieve Year 2000 compliance, the Originator's performance of its
obligations to the Issuer under the Transaction Documents, including servicing
of the Leases, could be adversely affected. This could result in delays in
processing payments on the Leases and could cause a delay in distributions to
the Noteholders.
The Trustee
The Trustee for a series of Notes will be identified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the Notes will be limited solely to the express obligations of the
Trustee set forth in the Indenture. The Originator and its affiliates may from
time to time enter into normal banking and Trustee relationships with the
Trustee and its affiliates. The Trustee, the Servicer and any of their
respective affiliates may hold Notes in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or a separate Trustee under
the Indenture. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate Trustee or co-Trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or co-
trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
No resignation or removal of the Trustee and no appointment of a
successor Trustee will become effective until the acceptance of appointment by
the successor Trustee. The Trustee may resign at any time by giving written
notice thereof to the Issuer and the Servicer and by mailing notice of
resignation by first-class mail, postage prepaid, to the Noteholders of such
series at their addresses appearing on the security register. The Trustee
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may be removed at any time by written notice of the holders of Notes evidencing
more than 66% of the voting rights thereof, delivered to the Trustee and the
Issuer. If the Trustee resigns, is removed, or becomes incapable of acting, or
if a vacancy shall occur in the office of the Trustee for any cause, the Issuer
must promptly appoint a successor Trustee. If no successor Trustee shall have
been so appointed by the Issuer or the Noteholders, or if no successor Trustee
shall have accepted appointment within 30 days after any such resignation or
removal, existence of incapability, or occurrence of such vacancy, the Trustee
or any Noteholder may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Assignment and Servicing Agreement, the Notes (other than the
authentication thereof) or of any Lease Receivable or related document and will
not be accountable for the use or application by the Servicer or the Issuer of
any funds paid to the Issuer in consideration of the sale of any Notes. If no
Servicer Events of Default (as defined herein) have occurred, then the Trustee
will be required to perform only those duties specifically required of it under
the Assignment and Servicing Agreement. However, upon receipt of the various
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments required to be furnished to it, the Trustee will be required
to examine them to determine whether they conform as to form to the requirements
of the Assignment and Servicing Agreement.
No recourse is available based on any provision of the Assignment and
Servicing Agreement, the Notes or any Lease Receivable or assignment thereof
against the Trustee, in its individual capacity, and the Trustee will not have
any personal obligation, liability or duty whatsoever to any Noteholder or any
other person with respect to any such claim and such claim shall be asserted
solely against the Servicer or any indemnitor, except for such liability as is
determined to have resulted from the Trustee's own gross negligence or willful
misconduct.
The Trustee will be entitled to receive (a) reasonable compensation
for its services, (b) reimbursement for its reasonable expenses and (c)
indemnification for loss, liability or expense incurred without gross negligence
or bad faith on its part, arising out of performance of its duties thereunder.
Description of the Notes
General
Each series of the Notes will be issued pursuant to an Indenture. The
following summaries (together with additional summaries under "Description of
the Transaction Documents" below) describe all material terms and provisions of
the Notes. The summaries do not contain all the terms of the Notes and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Transaction Documents and the Notes.
All of the Notes offered by this Prospectus will be rated in one of
the four highest rating categories by one or more nationally recognized
statistical rating organizations (each a "Rating Agency" and, collectively, the
"Rating Agencies").
The Notes will generally be styled as debt instruments, having a
principal balance and a specified floating or fixed interest rate. The Notes of
each series will represent debt secured by an Asset Pool comprised primarily of
the Lease Receivables described in the related Prospectus Supplement.
General Payment Terms of Notes
As provided in the related Transaction Documents, Noteholders will be
entitled to receive payments on their Notes on the specified Payment Dates or on
the next day that is not a Saturday, Sunday or other day on which commercial
banking institutions located in the city or cities where the Corporate Trust
Office of the Trustee and the Servicer (and, if applicable, any credit
enhancement provider) are located are authorized or obligated by law or
executive order to be closed (each a "Business Day").
Neither the Notes nor the underlying Lease Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Issuer, the Servicer, the Seller, any Trustee or any of their respective
affiliates.
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Collections
The following funds will be deposited into the Collection Account (as
defined below):
(a) Lease Payments;
(b) recoveries from Non-Performing Leases (as defined below) to the
extent the Originator has not substituted Substitute Leases (as defined below)
for such Non-Performing Leases;
(c) late charges received on delinquent Lease Payments not advanced
by the Servicer;
(d) proceeds from purchases of Leases by the Originator as a result
of breaches of representations and warranties to the extent the Originator has
not substituted Substitute Leases for such Leases;
(e) proceeds from investment of funds in the Collection Account and
any other applicable Transaction Account (as defined below);
(f) Casualty Payments;
(g) Retainable Deposits (each as defined below);
(h) Servicer Advances (as defined below, if any);
(i) Termination Payments (as defined below), to the extent the Issuer
does not reinvest such Termination Payments in Additional Leases; and
(j) proceeds received to effect a redemption of the Notes pursuant to
the Indenture.
The foregoing funds on deposit in the Collection Account on each
determination date relating to a Payment Date, excluding Lease Payments not due
during the preceding calendar month (a "Due Period") or any prior Due Period,
together with any funds deposited into the Collection Account from any Reserve
Account as described below under "Distributions," will constitute available
funds ("Available Funds"). Available Funds do not include cash flows realized
from the sale or release of Equipment following the expiration date of the
related Lease other than Equipment subject to Non-Performing Leases (as defined
below) that have not been replaced.
The Servicer must deposit the funds referred to in clauses (a) through
(d), (f) and (i) above into the Collection Account within two Business Days of
receipt thereof by the Servicer. The funds referred to in clauses (e), (g), (h)
and (j) above are to be deposited into the Collection Account on or prior to the
related Payment Date.
A "Lease Payment" is the equipment financing portion of each fixed
periodic rental payment payable by a Lessee under a Lease. Casualty Payments,
Retainable Deposits, Termination Payments, prepayments of rent required pursuant
to the terms of a Lease at or before the commencement of the term of such Lease,
security deposits, payments becoming due before each Cut-Off Date and
supplemental or additional payments required by the terms of a Lease with
respect to taxes, insurance, maintenance or other specific charges such as
excess copy charges are not Lease Payments.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair (each, a "Casualty") of any item of Equipment subject thereto
which results, in accordance with the terms of the Lease, in a reduction in the
number or amount of any future Lease Payments or in the termination of the
Lessee's obligation to make future Lease Payments.
A "Retainable Deposit" is any security or other similar deposit which
the Servicer has determined in accordance with its customary servicing practices
is not refundable to the related Lessee.
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A "Termination Payment" is a payment payable by a Lessee under a Lease
upon the early termination of such Lease (other than on account of a Casualty or
a Lease default) which may be agreed upon by the Servicer, acting in the name of
the Issuer, and the Lessee.
"Non-Performing Leases" are (i) Leases that have become more than 120
days delinquent, (ii) Leases that have been accelerated by the Servicer or (iii)
Leases that the Servicer has determined to be uncollectible in accordance with
the Servicer's customary practices.
Distributions
On each Payment Date, Available Funds will be applied to make payments
of principal and interest due on the Notes, amounts owed to the Servicer,
Trustee (to the extent not payable by the Servicer) and other parties and for
other purposes as described and in the priority set forth in the related
Prospectus Supplement. If a Reserve Account is established for a series of
Notes, the related Prospectus Supplement will describe how much in that account
will be transferred to the Collection Account when there is a deficiency in
Available Funds otherwise available to make any payment due on each Payment
Date. Similarly, the related Prospectus Supplement will describe the extent to
which the proceeds of any applicable credit enhancement will be applied to make
up any such deficiency.
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the Leases may be in the form of scheduled payments, prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any prepayments or liquidations will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Leases. The rate of such prepayments
and liquidations may be influenced by a number of other factors, including
general economic conditions. The rate of principal payments may also be
affected by any repurchase of the underlying Leases by the Originator or Seller
pursuant to the Assignment and Servicing Agreement. In such event, the
application of the repurchase price will decrease the Discounted Present Value
of the Performing Leases, causing the corresponding weighted average life of the
Notes to decrease.
Subject to certain limitations, the Originator will have the option to
substitute Eligible Leases having similar characteristics (each a "Substitute
Lease") for (i) Non-Performing Leases, (ii) Leases subject to repurchase as a
result of a breach of a representation and warranty by the Originator under the
Transaction Documents which breach has not been cured following discovery/notice
of such breach (each, a "Warranty Lease") and (iii) Leases following a
modification or adjustment to the terms of such Lease (each an "Adjusted
Lease"). The Originator may substitute Substitute Leases for Non-Performing
Leases, Adjusted Leases or Warranty Leases in amounts not to exceed specified
percentages (to be stated in the related prospectus supplement) of the
Discounted Present Value of the Leases as of the original Cut-Off Date. In
addition, in the event of a Lease that terminates early or which has been
prepaid in full (each, an "Early Termination Lease"), the Originator will have
the option to transfer an additional lease of similar characteristics (each, an
"Additional Lease"). The Substitute Leases and Additional Leases must have a
Discounted Present Value of not less than the Discounted Present Value of the
Leases being replaced and the monthly payments on the Substitute Leases or
Additional Leases must be at least equal to those of the replaced Leases through
the term of such replaced Leases. In the event that a Substitute Lease is not
provided for a Non-Performing Lease, the Discounted Present Value of the Leases
in the related Asset Pool will be reduced in an amount at least equal to the
Discounted Present Value of the Non-Performing Lease, plus any delinquent
payments.
The effective yield to holders of the Notes will depend upon, among
other things, the rate at which principal is paid to such Noteholders. The
after-tax yield to Noteholders may be affected by lags between the time interest
income accrues to Noteholders and the time the related interest income is
received by the Noteholders.
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Book-Entry Registration
Noteholders of a given series may hold their Notes through the
Depository Trust Company ("DTC") (in the United States) or CEDEL or Euroclear
(in Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede & Co. ("Cede"), as nominee for DTC, will hold the global Notes in
respect of given series. CEDEL and Euroclear will hold omnibus positions on
behalf of the CEDEL Participants (as defined below) and the Euroclear
Participants (as defined below) (collectively, the "Participants"),
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold those positions in customers' securities
accounts in the Depositories' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of securities. Participants
include brokers and dealers, banks, trust companies and clearing corporations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depository to take action
to effect final settlement on its behalf by delivering or receiving Notes in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositories.
Because of time-zone differences, credits of Notes in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent Notes settlement processing, dated the Business Day
following the DTC settlement date, and those credits or any transactions in
those subsequent Notes will be reported to the relevant CEDEL Participant or
Euroclear Participant on that Business Day. Cash received in CEDEL or Euroclear
as a result of sales of Notes by or through a CEDEL Participant or a Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the Business Day following settlement in DTC.
Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all distributions of principal and interest
through the Participants who in turn will receive them from DTC. Under a book-
entry format, Noteholders may experience some delay in their receipt of
payments, since the payments will be forwarded by the Issuer or note paying
agent to Cede, as nominee for DTC. DTC will forward the payments to its
Participants, which thereafter will forward them to Indirect Participants or the
Noteholders. It is anticipated that the only "Noteholder" in respect of any
series will be Cede, as nominee of DTC. Noteholders will not be recognized as
Noteholders, and the Noteholders will be permitted to exercise the rights of
Noteholders only indirectly through DTC and its Participants.
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Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Notes among Participants on whose behalf it acts with respect to the Notes
and to receive and transmit distributions of principal of, and interest on, the
Notes. Participants and Indirect Participants with which the Noteholders have
accounts with respect to the Notes similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Noteholders. Accordingly, although such Noteholders will not possess Notes, the
Rules provide a mechanism by which Participants will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Noteholder
to pledge Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Notes, may be limited due to
the lack of a physical certificate for such Notes.
DTC will advise the Issuer and/or Trustee in respect of each series
that it will take any action permitted to be taken by a Noteholder only at the
direction of one or more Participants to whose accounts with DTC the Notes are
credited. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of Participants
whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
trust depository ("Trust Depository"). CEDEL holds notes for its participating
organizations ("CEDEL Participants") and facilitates the clearance and
settlement of notes transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of notes. Transactions may be settled in CEDEL in
any of 38 currencies, including United States dollars. CEDEL provides to its
CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional Trust Depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to CEDEL is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold notes for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 37 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of notes and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and
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receipts of payments with respect to Notes in the Euroclear System. All Notes in
the Euroclear System are held on a fungible basis without attribution of
specific Notes to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants and
has no record of relationship with persons holding through Euroclear
Participants.
DTC management is aware that some computer applications, systems and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter Year 2000
problems. DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to Noteholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to properly perform its services is also
dependent upon other parties, including, but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information and the
provision of services, including telecommunications and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
additional, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
Except as required by law, neither the Issuer nor any paying agent
will have any liability for any aspect of the records relating to or payments
made or account of beneficial ownership interests of the related Notes held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
Definitive Notes
The Notes of any series will be issued in fully registered,
certificated form ("Definitive Notes") to the Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Servicer advises in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Trust Depository with respect to such Notes and such Issuer is unable to
locate a qualified successor, (ii) the Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
"Event of Default" under the Indenture or a default by the Servicer under the
Assignment and Servicing Agreement. Noteholders representing at least a
majority of the outstanding principal amount of the Notes of that series advise
the Issuer through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in such Noteholders' best
interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Trustee will be required to notify all affected
Noteholders through Participants of the availability of Definitive Notes. Upon
surrender by DTC of its Notes and receipt of instructions for reregistration,
the Issuer will reissue DTC's Notes as Definitive Notes to the Noteholders in
the amounts specified in the reregistration instructions.
Distributions of principal of, and interest on, Definitive Notes will
thereafter be made by the Issuer in accordance with the procedures set forth in
the Indenture directly to holders of Definitive Notes in whose names the
Definitive Notes were registered at the close of business on the applicable
Record Date. Distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the Trustee. The final
payment on any Definitive Note, however, will be made only upon presentation and
surrender of the Note at the office or agency specified in the notice of final
distribution to the applicable Noteholders.
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Definitive Notes will be transferable and exchangeable at the offices
of the Issuer or Trustee or of a certificate registrar named in a notice
delivered to holders of the Definitive Notes. No service charge will be imposed
for any registration of transfer or exchange, but the Issuer or the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Reports to Noteholders
On or prior to each Payment Date, the Servicer or the Trustee will
forward or cause to be forwarded to each holder of record of a Class of Notes a
statement or statements with respect to the related Asset Pool setting forth the
information specifically described in the Transaction Document which generally
will include the following information:
(i) the amount of the distribution with respect to that class of
Notes;
(ii) the amount of the distribution allocable to principal;
(iii) the amount of the distribution allocable to interest;
(iv) the Discounted Present Value of the Leases in the related
Asset Pool;
(v) the Asset Pool balance;
(vi) the aggregate outstanding principal balance and the Pool
Factor for such Class of Notes after giving effect to all payments reported
under (ii) above on such Payment Date;
(vii) the amount paid to or retained by the Servicer, if any, with
respect to the related Due Period; and
(viii) the aggregate purchase amounts for Lease Receivables that have
been reacquired, if any, for the related Due Period.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Issuer or the Servicer will provide to the
Noteholders a statement containing the amounts described in (ii) and (iii) above
for that calendar year and any other information required by applicable tax
laws, for the purpose of the Noteholders' preparation of federal income tax
returns.
Description of the Transaction Documents
The following summary describes the material terms of each transaction
document pursuant to which an Asset Pool will be created and a series of Notes
will be issued. For purposes of this Prospectus, the term "Transaction
Documents" as used with respect to a series of Notes means the Indenture and
Assignment and Servicing Agreement relating to a series of Notes. Forms of the
Transaction Documents have been filed as exhibits to the Registration Statement
of which this Prospectus forms a part. This description is not a complete
summary of all the provisions of the respective Transaction Documents.
Assignment and Servicing Agreement
Acquisition of the Lease Receivables. On the Issuance Date, the
Seller will acquire the related Lease Receivables from the Originator pursuant
to an Assignment and Servicing Agreement in which the Originator will make
certain representations and warranties concerning the Lease Receivables. The
rights and benefits of the Seller under the Assignment and Servicing Agreement
will be assigned to the Issuer by the Seller pursuant to the Assignment and
Servicing Agreement and, in turn, pledged to the Trustee under an Indenture.
Contemporaneously, the Issuer will acquire the related Lease
Receivables from the Seller pursuant to the Assignment and Servicing Agreement.
The Issuer will pledge the Issuer's right, title and interests in and to the
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Lease Receivables to the Trustee for the benefit of Noteholders under the
Indenture. The rights and benefits of the Issuer under the Assignment and
Servicing Agreement will be assigned to the Trustee on behalf of Noteholders as
collateral for the Notes by the Issuer under the Indenture.
Additions, Substitutions and Adjustments. The Originator will be
obligated to purchase from the Issuer its interest in any Lease in the Asset
Pool that has become a Warranty Lease unless an Eligible Lease is substituted
therefor in accordance with the related Assignment and Servicing Agreement.
Pursuant to the Assignment and Servicing Agreement, the Originator
will have the option to substitute Eligible Leases for Non-Performing Leases,
Adjusted Leases and Warranty Leases and to add Additional Leases. The
percentage of Leases in any Asset Pool that can be substituted for Non-
Performing Leases, Adjusted Leases and Warranty Leases will be limited, as
described in the related Prospectus Supplement, to a percentage of the aggregate
Discounted Present Value of the Leases in the Asset Pool as of the related Cut-
Off Date. See "Description of the Notes -- Prepayment and Yield
Considerations."
Servicing. The Servicer will service the Lease Receivables in an
Asset Pool pursuant to an Assignment and Servicing Agreement. The Servicer may
delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Assignment and Servicing Agreement. An uncured breach of
such a representation or warranty that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Event of
Default by the Servicer.
The Assignment and Servicing Agreement will provide that the Servicer
will take or cause to be taken all actions as are necessary or advisable to
service, administer and collect each Lease in accordance with customary and
prudent servicing procedures for leases of a similar type, and in accordance
with applicable laws, rules and regulations and, in any event, according to a
standard of care not less than that which it applies to leases it services for
its own account.
Advances by the Servicer. Prior to any Payment Date, with respect to
any series, the Servicer may, but will not be required to, advance (each, a
"Servicer Advance") to the Trustee an amount sufficient to cover delinquencies
on Leases with respect to the prior Due Period. The Servicer will be entitled
to reimbursement for Servicer Advances.
Servicing Compensation. The Servicer will be entitled to receive a
servicing fee for each Due Period (the "Servicing Fee") in an amount equal to a
specified percentage per annum of the Discounted Present Value of the Performing
Leases or the Outstanding Principal Amount of the Notes, as of the first day of
such Due Period. The Indenture will specify the priority of the Servicing Fee
in relation to payments to Noteholders and other persons. The Servicing Fee may
be paid prior to any distribution to the Noteholders.
If so provided in the related Transaction Documents, the Servicer will
also be entitled to reimbursement of out-of-pocket expenses reasonably incurred
in the course of performance of its duties as Servicer and to collect and retain
any late fees, the penalty portion of interest paid on past due amounts and
other administrative fees or similar charges allowed by applicable law with
respect to the Lease Receivables and any prepayment premiums or other payments
in excess of the present value of all outstanding amounts owed under a Lease by
a Lessee as a result of the early termination thereof, and will be entitled to
reimbursement from the Issuer for certain liabilities. Payments by or on behalf
of Lessees will be allocated to scheduled payments and late fees and other
charges in accordance with the Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third-party servicer of similar types of leases as an agent for
their beneficial owner. The Servicing Fee also will compensate the Servicer for
administering the Lease Receivables, accounting for collections and furnishing
statements to the Issuer and the Trustee with respect to distributions. The
Servicing Fee also will reimburse the Servicer for certain taxes,
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accounting fees, outside auditor fees, trustees fees, data processing costs and
other costs incurred in connection with administering the Lease Receivables.
Statements to Trustees and Issuer. Prior to each Payment Date for a
series of Notes, the Servicer will provide to the Trustee as of the close of
business on the last day of the preceding related Due Period, a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to Noteholders described under "Description of
the Notes--Reports to Noteholders."
Evidence as to Compliance. The Assignment and Servicing Agreement
will provide that a firm of independent public accountants will furnish to the
Issuer and the Trustee, annually, a statement as to compliance by the Servicer
during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Issuance Date) with certain
standards relating to the servicing of the Lease Receivables.
The Assignment and Servicing Agreement will also provide for the
annual delivery to the Issuer and/or the Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under the Assignment and Servicing Agreement in all material
respects throughout the preceding 12 months (or, in the case of the first
certificate, the period from the applicable Issuance Date) or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. The Servicer also will agree to give the Trustee
notice of certain Servicer Events of Defaults (as defined below) under the
related Assignment and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders owning at least 25% of the outstanding principal amount of the Notes
of the relevant series upon request in writing addressed to the Trustee or the
Servicer.
Certain Matters Regarding the Servicer. The Assignment and Servicing
Agreement will provide that the Servicer may not resign from its obligations and
duties as Servicer thereunder, except upon determination that the performance by
the Servicer of such duties is no longer permissible under applicable law. No
resignation by the Servicer will become effective until the Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Assignment and Servicing Agreement.
The Assignment and Servicing Agreement will further provide that
neither the Servicer nor any of its directors, officers, employees, or agents
will be under any liability to the Issuer or the Noteholders for taking any
action or for refraining from taking any action pursuant to the Assignment and
Servicing Agreement; provided, however, that neither the Servicer nor any of
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those other persons will be protected against any liability that would otherwise
be imposed based on any breach of the warranties, representations or warranties
made by the Servicer in the Assignment and Servicing Agreement or by reason of
willful misfeasance, bad faith or negligence in the performance or non-
performance of duties.
Under the circumstances specified in the Assignment and Servicing
Agreement, any entity into which the Servicer may be merged or consolidated, or
any entity resulting from any merger or consolidation to which the Servicer is a
party, or any entity succeeding to the business of the Servicer or, with respect
to its obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
to the Servicer under the Assignment and Servicing Agreement.
Servicer Events of Default. The following events and conditions, and
any additional events and conditions that are described in the related
Prospectus Supplement, will be defined in the Assignment and Servicing
Agreement as "Servicer Events of Default":
(a) failure on the part of the Servicer to remit to the Trustee within
three Business Days following the receipt thereof any monies
received by the Servicer required to be remitted to the Trustee
under the Assignment and Servicing Agreement;
(b) failure on the part of the Servicer to pay to the Trustee on the
date when due, any payment required to be made by the Servicer
pursuant to the Assignment and Servicing Agreement;
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(c) default on the part of either the Servicer or (so long as IOS
Capital is the Servicer) IOS Capital in its observance or
performance in any material respect of certain covenants or
agreements in the Assignment and Servicing Agreement which
failure continues unremedied for a period of 30 days after the
earlier of (i) the date it first becomes known to any officer of
IOS Capital or the Servicer, as the case may be, and (ii) the date
on which written notice thereof requiring the same to be remedied
shall have been given to the Servicer or IOS Capital, as the case
may be, by the Trustee, or to the Servicer or IOS Capital, as the
case may be, and the Trustee by any Noteholder;
(d) if any representation or warranty of IOS Capital made in the
Assignment and Servicing Agreement proves to be incorrect in any
material respect as of the time made; provided, however, that the
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breach of any representation or warranty made by IOS Capital in
such Assignment and Servicing Agreement will be deemed to be
"material" only if it affects the Noteholders or the
enforceability of the related Indenture or of the related Notes;
and provided, further, that a material breach of any
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representation or warranty made by IOS Capital in an Assignment
and Servicing Agreement with respect to any of the Lease
Receivables subject thereto will not constitute a Servicer Event
of Default if IOS Capital purchases such Lease Receivable in
accordance with the Assignment and Servicing Agreement to the
extent provided therein;
(e) certain insolvency or bankruptcy events relating to the Servicer;
(f) the failure of the Servicer to make one or more payments due with
respect to aggregate recourse debt or other obligations exceeding
$5,000,000, or the occurrence of any event or the existence of any
condition, the effect of which event or condition is to cause (or
permit one or more persons to cause) more than $5,000,000 of
aggregate recourse debt or other obligations of the Servicer to
become due before its (or their) stated maturity or before its (or
their) regularly scheduled dates of payment so long as such
failure, event or condition shall be continuing and not waived by
the person or persons entitled to performance; or
(g) a final judgment or judgments (or decrees or orders) for the
payment of money aggregating in excess of $5,000,000 and any one
of such judgments (or decrees or orders) has remained unsatisfied
and in effect for any period of 60 consecutive days without a stay
of execution.
Rights upon Servicer Events of Default. As long as a Servicer Event
of Default under the Assignment and Servicing Agreement remains unremedied, the
Trustee may, and upon the instruction of holders of Notes evidencing not less
than 66-2/3% in principal amount of the Notes of the relevant series or, if and
to the extent described in the related Prospectus Supplement, any credit
enhancement provider, shall, terminate all the rights and obligations of the
Servicer, if any, under the related Assignment and Servicing Agreement,
whereupon a successor servicer appointed by such Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Assignment
and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Event of Default other than the
appointment of a successor servicer has occurred, the bankruptcy trustee or
official may have the power to prevent the Trustee or the Noteholders from
effecting a transfer of servicing. In the event that the Trustee is unwilling
or unable to so act, it may, subject to certain limitations, appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
servicer. The Trustee may make arrangements for compensation to be paid to the
successor, which in no event may be greater than the servicing compensation
payable to the Servicer under the Assignment and Servicing Agreement or such
other amount indicated in the related Prospectus Supplement.
Indenture
Accounts. The Trustee will establish and maintain one or more
accounts in the name of such Trustee on behalf of the Noteholders into which
payments made on or with respect to the related Lease Receivables shall be
deposited as provided in the related Transaction Documents (the "Collection
Account"). In addition, the Trustee may establish one or more other separate
accounts in the name of the Trustee for the benefit of the
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Noteholders, (i) for the deposit of funds for distribution to the Noteholders (a
"Distribution Account"), (ii) to provide reserves to cover shortfalls in
Available Funds (a "Reserve Account"), (iii) to provide funds for the purchase
of additional Lease Receivables during any applicable pre-funding period (a
"Pre-Funding Account"), or (iv) for any other purpose (an "Additional Account").
Funds in the Collection Account and any Distribution Account, Reserve
Account, Pre-Funding Account or Additional Account (collectively, the
"Transaction Accounts") will be invested as provided in the related Indenture in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Notes. Eligible Investments generally are limited to obligations
that mature not later than the Business Day immediately preceding the next
succeeding Payment Date.
The Transaction Accounts will be maintained as Eligible Accounts.
"Eligible Account" means either (a) an account maintained with a depository
institution or trust company acceptable to each of the Rating Agencies and any
credit enhancement provider, or (b) a trust account or similar account
maintained with a federal or state chartered depository institution, which may
be an account maintained with the Trustee.
Distributions. Beginning on the first Payment Date, distributions of
principal and interest (or, where applicable, of principal only or interest
only) on each Class of Notes entitled thereto will be made to the Noteholders.
The timing, calculation, allocation, order, source, priorities of, distribution
of, and requirements for each Class of Notes will be set forth in the related
Prospectus Supplement.
Credit Enhancements. The amounts and types of credit enhancement
arrangements, if any, and the provider thereof, if applicable, with respect to
each Class of Notes of a given series will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related Prospectus
Supplement, credit enhancement may be in the form of an insurance policy,
subordination of one or more classes of Notes, reserve accounts,
overcollateralization, letters of credit, credit or liquidity facilities, third
party payments or other support, surety bonds, guaranteed cash deposits or such
other arrangements as may be described in the related Prospectus Supplement or
any combination of two or more of the foregoing. If specified in the related
Prospectus Supplement, credit enhancement for a Class of Notes may cover one or
more other classes of Notes of the same series, and credit enhancement for a
series of Notes may cover one or more other series of Notes.
The presence of credit enhancement for the benefit of any Class or
series of Notes is intended to enhance the likelihood of receipt by the
Noteholders of such Class or series of the full amount of principal and interest
due thereon and to decrease the likelihood that such Noteholders will experience
losses. As more specifically provided in the related Prospectus Supplement, the
credit enhancement for a Class or series of Notes will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance and interest thereon. If losses occur which exceed the amount
covered by any credit enhancement or which are not covered by any credit
enhancement, Noteholders of any Class or series will bear their allocable share
of deficiencies, as described in the related Prospectus Supplement. In
addition, if a form of credit enhancement covers more than one Class of Notes or
more than one series of Notes, Noteholders of any such Class or series will be
subject to the risk that such credit enhancement will be exhausted by the claims
of Noteholders of other series.
If the protection provided to the Noteholders of a given Class of
Notes by any applicable credit enhancement or by the subordination of another
Class of Notes is insufficient, the Issuer must rely solely on the Asset Pool.
Modification of the Indenture. Under an Indenture, the rights and
obligations of the Issuer and the rights of the Noteholders may be modified by
the Issuer with the consent of the holders of not less than 66-2/3% in aggregate
principal amount of the Notes then outstanding under the Indenture or, if and to
the extent described in the related Prospectus Supplement, the consent of any
credit enhancement provider; but no such modification may be made if it would
result in the reduction or withdrawal of the then current ratings of the
outstanding related Notes and no such modification may be made without the
consent of the holder of each outstanding note affected thereby if it would: (a)
change the fixed maturity of any Note, or the principal amount or interest
amount payable thereof, or change the priority of payment thereof or reduce the
interest rate or the principal thereon or change the place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any payment on or
after the maturity thereof; or (b) reduce the above-stated
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percentage of Notes, without the consent of the holders of all Notes then
outstanding under that Indenture or (c) modify the provisions of the Indenture
restricting modifications or waivers of the provisions of the Indenture except
to increase any percentage or fraction set forth therein or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the holder of each outstanding note affected thereby; or (d)
modify or alter the provisions of the Indenture treating Notes held by the
Issuer or any affiliate of the Issuer as not being "Outstanding" for certain
purposes under the Indenture; or (e) permit the creation of any lien ranking
prior to or on a parity with the lien of the Indenture with respect to any part
of any Asset Pool or, except as provided in the Indenture, terminate the lien of
the Indenture on any part of an Asset Pool at any time subject to the Indenture
or deprive any Noteholder of the security afforded by the lien of the Indenture.
Events of Default. "Events of Default" under an Indenture will
include, in addition to any other events or conditions described in the related
Prospectus Supplement: (i) a default for five days or more in the payment of
any interest on any Note issued under that Indenture; (ii) a default in the
payment of the principal of or any installment of the principal of any Note at
the stated maturity or when the same becomes due and payable; (iii) a default in
the observance or performance in any material respect of any covenant or
agreement regarding the contemplated transaction made in the related Transaction
Documents, or any representation or warranty made by the Issuer in the
Transaction Documents or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect as of the time made, and the
continuation of any default or the failure to cure a breach of a representation
or warranty for a period of 30 days (or in certain circumstances 90 days) after
notice thereof is given to the Issuer by the Trustee or the Issuer and the
Trustee by the holders of at least 25% in principal amount of the Notes then
outstanding; or (iv) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Issuer.
If an Event of Default occurs, the Trustee or, to the extent described
in the related Prospectus Supplement, any credit enhancement provider may, and
if so directed by holders of not less than 66-2/3% of the then outstanding
principal amount of the Notes, shall, declare the unpaid principal amount of the
related Notes to be immediately due and payable together with all accrued and
unpaid interest thereon. If the Event of Default involves other than non-
payment of principal or interest on the Notes, the Trustee may not sell the
related Lease Receivables unless the sale is for an amount greater than or equal
to the outstanding principal amount of the Notes unless directed to do so by the
holders of 66-2/3% of the then outstanding principal amount of the Notes.
Subsequent to an Event of Default and following any acceleration of
the Notes pursuant to the Indenture, any monies that may then be held or
thereafter received by the Trustee will be applied in the order of priority set
forth in the related Prospectus Supplement at the date or dates fixed by the
Trustee and, in case of the distribution of the entire amount due on account of
principal or interest, upon presentation and surrender of the Notes.
Each Indenture will provide that the holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding or, if and to the extent
described in the related Prospectus Supplement, any credit enhancement provider
will have the right to waive certain defaults and, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust power conferred
on the Trustee. The Indenture will provide that in case an Event of Default
shall occur (which shall not have been cured or waived), the Trustee will be
required to exercise its rights and powers under such Indenture and to use the
degree of care and skill in their exercise that a prudent man would exercise or
use in the conduct of his own affairs. Subject to these provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the Noteholders unless they shall have
offered to the Trustee security or indemnity satisfactory to the Trustee. Upon
request of a Noteholder, the Trustee will provide information as to the
outstanding principal amount of each Class of Notes.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest
accrued to the date fixed for redemption if on any payment date the Discounted
Present Value the Leases is less than or equal to 10% of the Discounted Present
Value of the Leases in the related Asset Pool as of the original Cut-Off Date.
The Issuer will give notice of redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for prepayment. Upon deposit of
funds necessary to effect redemption, the Trustee shall pay the remaining unpaid
principal amount on the Notes and all accrued and unpaid interest as of the
Payment Date fixed for redemption.
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Legal Aspects of the Lease Receivables
General
The Leases will either be "chattel paper" as defined in the Uniform
Commercial Code or Leases that are not treated materially differently from
"chattel paper" for purposes of title transfer, security interests or remedies
on default. Pursuant to the UCC for most purposes, a sale of chattel paper is
treated in a manner similar to a transaction creating a security interest in
chattel paper. In connection with the creation of an Asset Pool, the Issuer,
the Originator, the Servicer and/or the Seller will cause the filing of
appropriate UCC-1 financing statements with respect to the Leases to be made
with the appropriate governmental authorities. Under the Assignment and
Servicing Agreement, the Servicer will be obligated from time to time to take
any actions necessary to protect, perfect and preserve the Issuer's or the
Trustee's interests in the Leases and their proceeds, as the case may be.
The Leases are triple-net leases, requiring the Lessees to pay all
taxes, maintenance and insurance associated with the Equipment, and provide that
they are noncancellable by the Lessees.
The Leases are full payoff leases, under which the obligations of the
Lessee are absolute and unconditional, regardless of any defense, setoff or
abatement which the Lessee may have against IOS Capital, as Originator or
Servicer, the Issuer, or any other person or entity whatsoever.
Defaults under the Leases are generally the result of failure to pay
amounts when due, failure to observe other covenants in the Lease,
misrepresentations by, or insolvency, bankruptcy or appointment of a trustee or
receiver for, the Lessee under a Lease. The remedies of the lessor (and the
Issuer as assignee) following any applicable notice and cure period are
generally to enforce the performance by the Lessee of the terms and covenants of
the Lease (including the Lessee's obligations to make scheduled payments) or
recover damages of the breach thereof, to accelerate the balance of the
remaining scheduled payments paid or to terminate the rights of the Lessee under
such Lease. Although the Leases permit the lessor to repossess and dispose of
the related Equipment in the event of a lease default, and to credit the
proceeds against the Lessee's liabilities thereunder, these remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations
The Originator will transfer all the Originator's interest in the
Equipment to the Seller. The Seller will assign its interest as secured party
in the Equipment relating to the Leases to the Issuer, which in turn will pledge
that interest to the Trustee for the benefit of the Noteholders. The Seller
will not transfer any of its ownership interests in any of the Equipment.
Because of this, the Trustee, on behalf of the Noteholders, will have no
interest in or recourse to any of the Equipment other than by virtue of the
security interest granted to the Issuer in the Seller's interest in the
Equipment and the Issuer's pledge of that interest to the Trustee. As a result,
the Trustee may be unable to foreclose on the Equipment in the event of a
default by a Lessee on any Lease and Noteholders may experience delays in
receiving payments and suffer a loss of their investment in the Notes. UCC
financing statements will not be filed to perfect any security interest in the
Equipment. Moreover, Equipment may be subject to a superior lien. In this
case, the senior lienholder may be entitled to be paid the full amount of the
indebtedness owed to it out of the sale proceeds before the proceeds could be
applied to the payment of claims on behalf of the Issuer or Noteholders. In
addition, in the event of bankruptcy of the Originator or the Seller, the
security interest in the Equipment of the Issuer or Trustee may be subject to
avoidance under the Bankruptcy Code of 1978, as amended (the "Bankruptcy Code").
In the event of a default by the Lessee under a finance lease, the
Servicer may take action to enforce the Non-Performing Lease by repossession and
resale of the Equipment. Under the UCC in most states, a creditor can, without
prior notice to the debtor, repossess assets securing a defaulted contract by
the Lessee's voluntary surrender of such assets or by "self-help" repossession
that does not involve a breach of the peace or by judicial process.
In the event of a default by the Lessee under a finance lease, some
jurisdictions require that the Lessee be notified of the default and be given a
time period within which it may cure the default prior to
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repossession. Generally, this right of reinstatement may be exercised on a
limited number of occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that any such sale be
conducted in a commercially reasonable manner. The Assignment and Servicing
Agreement may require the Servicer to sell promptly any repossessed item of
Equipment or re-lease such Equipment for the benefit of the Noteholders.
Under most state laws, a Lessee has the right to redeem collateral for
its obligations prior to actual sale by paying to the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type
subject to the Leases generally declines with age and because of obsolescence,
the net disposition proceeds of Equipment at any time during the term of a Lease
may be less than the outstanding balance of the Lease Payments. Because of
this, and because other creditors may have rights in the related Equipment
superior to those of the Issuer, the Servicer may not be able to recover the
entire amount due on a Non-Performing Lease in the event that the Servicer
elects to repossess and sell the Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a Lessee for any deficiency on
repossession and resale of the asset securing the unpaid balance of the Lessee's
contract. However, some states impose prohibitions or limitations on deficiency
judgments. In most jurisdictions, the courts, in interpreting the UCC, would
impose upon a creditor an obligation to repossess the equipment in a
commercially reasonable manner and to "mitigate damages" in the event of a
Lessee's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the equipment and to offset the net proceeds of such disposition
against its claim. In addition, a Lessee may successfully invoke an election of
remedies defense to a deficiency claim in the event that the Servicer's
repossession and sale of the Equipment is found to be a retention discharging
the Lessee from all further obligations under UCC Section 9-505(2). If a
deficiency judgment were granted, the judgment would be a personal judgment
against the Lessee for the shortfall, but a defaulting Lessee may have very
little capital or sources of income available following repossession.
Therefore, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or be uncollectible.
Certain statutory provisions, including federal and state bankruptcy
and insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a Lessee, various provisions of the Bankruptcy
Code and related laws may interfere with or eliminate the ability of the
Servicer, the Issuer or the Trustee to enforce its rights under the Lease
Receivables. If bankruptcy proceedings were instituted in respect of a Lessee,
the Issuer and/or Trustee could be prevented from continuing to collect payments
due from or on behalf of the Lessee or exercising any remedies without the
approval of the bankruptcy court, and the bankruptcy court could permit the
Lessee to use or dispose of the Equipment and provide the Issuer and/or Trustee
with a lien on substitute collateral, so long as such substitute collateral
constituted "adequate protection" as defined under the Bankruptcy Code.
In the case of operating leases, the Bankruptcy Code grants to the
bankruptcy trustee or the debtor-in-possession a right to elect to assume or
reject any executory contract or unexpired lease. Any rejection of this type of
lease or contract constitutes a breach of the lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into the
Collection Account and allocated to the Noteholders as more fully described
herein and in the related Prospectus Supplement. Upon the bankruptcy of a
Lessee, if the bankruptcy trustee or debtor-in-possession elected to reject a
Lease, the flow of scheduled payments to Noteholders would cease. In the event
that, as a result of the bankruptcy of a Lessee, the Leases become Non-
Performing Leases, no recourse would be available against the Originator (except
for misrepresentation or breach of warranty) and the Noteholders could suffer a
loss. Similarly, upon the bankruptcy of the Issuer, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the
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flow of Lease Payments to the Issuer and the Noteholders would cease. As noted
above, however, the Issuer has been structured so that the filing of a
bankruptcy petition with respect to it is unlikely. See "The Issuer."
In addition, certain of the Leases (but not in excess of 3% of the
related Asset Pool) may be with governmental entities. Payment by governmental
authorities of amounts due under these Leases may be contingent upon legislative
approval. Further, the assignment of their payment obligations may be void or
voidable if not done in compliance with applicable government rules and
regulations. Accordingly, payment delays and collection difficulties may limit
collections with respect to certain governmental Leases.
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment, may limit the amount
realized on the sale of the Equipment to less than the amount due on the related
Lease.
Material Federal Income Tax Consequences
General
The following discussion sets forth the material federal income tax
consequences to the original purchasers of the Notes of the purchase, ownership
and disposition of the Notes. The opinion of Dewey Ballantine LLP, special tax
counsel to the Issuer ("Tax Counsel"), does not purport to deal with all federal
tax considerations applicable to all categories of investors. Certain holders,
including insurance companies, tax-exempt organizations, financial institutions
or broker dealers, taxpayers subject to the alternative minimum tax, and holders
that will hold the Notes as other than capital assets, may be subject to special
rules that are not discussed below. In particular, this discussion applies only
to institutional investors that purchase the Notes directly from the Issuer and
hold the Notes as capital assets.
The discussion that follows, and the opinion of Tax Counsel set forth
below are based upon provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), treasury regulations promulgated thereunder as in effect on
the date hereof, and existing judicial and administrative interpretations
thereof. These authorities are subject to change and to differing
interpretations, which could apply retroactively. The opinion of Tax Counsel is
not binding on the courts or the Internal Revenue Service (the "IRS").
Potential investors should consult their own tax advisors in determining the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of the Notes.
The following discussion addresses lease-backed notes such as the
Notes that are intended to be treated for federal income tax purposes as
indebtedness secured by the underlying Lease Receivables. Tax Counsel has
prepared the following discussion and is of the opinion that such discussion is
correct in all material respects.
Tax Characterization of the Issuer
Tax counsel is of the opinion that the Issuer will not be treated as
an association (or a publicly traded partnership) taxable as a corporation for
federal income tax purposes.
Tax Characterization of the Notes
Although no transaction closely comparable to that contemplated herein
has been the subject of any treasury regulation, revenue ruling or judicial
decision, based on the application of existing law to the facts as set forth in
the applicable agreements, Tax Counsel is of the opinion that the Notes will be
treated as indebtedness for federal income tax purposes. If characterized as
indebtedness, interest on the Notes will be taxable as ordinary income for
federal income tax purposes when received by Noteholders using the cash method
of accounting ,and when accrued by Noteholders using the accrual method of
accounting. Noteholders using the accrual method of accounting may be required
to report income for tax purposes in advance of receiving a corresponding cash
distribution with which to pay the related tax. Interest received on the Notes
also may constitute "investment income" for purposes of certain limitations of
the Code concerning the deductibility of investment interest expense.
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Although it is the opinion of Tax Counsel that the Notes are properly
characterized as indebtedness for federal income tax purposes, no assurance can
be given that such characterization of the Notes will prevail. If the Notes
were treated as an ownership interest in the Leases, all income on the Leases
would be income to the holders of the Notes, and related fees and expenses would
generally be deductible (subject to certain limitations on the deductibility of
miscellaneous itemized deductions by individuals) and certain market discount
and premium provisions of the Code might apply to a purchase of the Notes.
If, alternatively, the Notes were treated as an equity interest in the
Issuer, the Issuer might be classified as a partnership, or as an association
(or a publicly traded partnership) taxable as a corporation. If the Notes were
treated as interests in a partnership, each item of income, gain, loss,
deduction and credit generated through the ownership of the Equipment and the
Lease Receivables by the partnership would be passed through to the Noteholders,
as partners in a partnership according to their respective interests therein.
The timing, amount and character of the income or expenses reportable by the
Noteholders as partners in such a partnership could differ from the income or
expenses reportable by the Noteholders as holders of debt. If the Noteholders
were treated as partners, a cash basis Noteholder might be required to report
income when it accrues to the partnership rather than when it is received by the
Noteholder. Moreover, if Notes were treated as interests in a partnership, an
individual Noteholder's share of expenses of the partnership (such as Servicing
Fees) would be miscellaneous itemized deductions that in the aggregate are
allowed only to the extent they exceed two percent of the individual
Noteholder's adjusted gross income, meaning that the individual Noteholder might
be taxed on a greater amount of income than the stated interest on his or her
Notes. Finally, if a Note were treated as a partnership interest, any taxable
income allocated to a Holder that is a pension, profit sharing or employee
benefit plan or otherwise tax-exempt, could constitute "unrelated business
taxable income."
If the Notes were treated as interests in an association (or a
publicly traded partnership) taxable as a corporation, the resulting entity
would be subject to federal income tax at corporate tax rates on its taxable
income generated by ownership of the Lease Receivables. Moreover, distributions
by the entity on the Notes probably would not be deductible in computing the
entity's taxable income and all or part of any distributions to Noteholders
would probably be treated as dividend income to such Noteholders. Such an
entity-level tax could result in a reduced amount of cash available for
distributions to Noteholders.
Since the Issuer will treat the Notes as indebtedness for federal
income tax purposes, the Trustee (and Participants and Indirect Participants)
will not attempt to satisfy the tax reporting requirements that would apply
under these alternative characterizations of the Notes. Further, if the IRS
were to contend successfully that the Notes are interests in a publicly traded
partnership taxable as a corporation, additional tax consequences would apply to
foreign Noteholders. Investors are urged to consult their own tax advisors with
regard to the potential application of those provisions.
Discount and Premium
A Note purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In very general terms, (i) original issue discount is
treated as a form of interest and must be included in a beneficial owner's
income as it accrues (regardless of the beneficial owner's regular method of
accounting) using a constant yield method; (ii) market discount is treated as
ordinary income and must be included in a beneficial owner's income as principal
payments are made on the Note (or upon a sale of a Note); and (iii) if a
beneficial owner so elects, premium may be amortized over the life of the Note
and offset against inclusions of interest income. These tax consequences are
discussed in greater detail below. Beneficial owners who are required to
include the interest income as it accrues may be required to report income for
tax purposes in advance of receiving a corresponding cash contribution with
which to pay the related tax.
Original Issue Discount. In general, a Note will be considered to be
issued with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a Note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the Notes is sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the Due Period and the closing date relating to such series of Notes (the
"Issuance Date"). The stated redemption price at maturity of a Note that has a
notional principal amount or receives principal only or that is or may provide
for accruals of interest is equal to the sum of all distributions to be made
under that Note. The stated
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redemption price at maturity of any other Note is its stated principal amount,
plus an amount equal to the excess (if any) of the interest payable on the first
Payment Date over the interest that accrues for the period from the Issuance
Date to the first Payment Date. The Trustee will supply, at the time and in the
manner required by the IRS, to beneficial owners, brokers and middlemen
information with respect to the original issue discount accruing on the Notes.
Notwithstanding the general definition, original issue discount will
be treated as zero if the discount is less than 0.25 percent of the stated
redemption price at maturity of the Note multiplied by its weighted average
life. The weighted average life of a Note is apparently computed for this
purpose as the sum, for all distributions included in the stated redemption
price at maturity, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Issuance Date until
the date on which each of those distributions is expected to be made by (ii) a
fraction, the numerator of which is the amount of the distribution and the
denominator of which is the Note's stated redemption price at maturity. Even if
original issue discount is treated as zero under this rule, the actual amount of
original issue discount must be allocated to the principal distributions on the
Note and, when each such distribution is received, gain equal to the discount
allocated to the distribution will be recognized.
The adjusted issue price of a Note at any time will equal the issue
price of such Note, increased by the aggregate amount of previously accrued
original issue discount with respect to that Note, and reduced by the amount of
any distributions made on that Note as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing
during any accrual period will then be allocated ratably to each day during the
period to determine the daily portion of original issue discount.
A subsequent purchaser of a Note that purchases it at a cost less than
its remaining stated redemption price at maturity also will be required to
include in gross income for each day on which it holds the Note, the daily
portion of original issue discount with respect to the Note (but reduced, if the
cost of the Note to the purchaser exceeds its adjusted issue price, by an amount
equal to the product of (i) that daily portion and (ii) a constant fraction, the
numerator of which is that excess and the denominator of which is the sum of the
daily portions of original issue discount on the Note for all days on or after
the day of purchase).
Market Discount. A beneficial owner that purchases a Note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of such Note (or, in the case of a Note with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Note, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Note not previously included in
income. With respect to Notes that have unaccrued original issue discount, such
market discount must be included in income in addition to any original issue
discount. A beneficial owner that incurs or continues indebtedness to acquire a
Note at a market discount may also be required to defer the deduction of all or
a portion of the interest on such indebtedness until the corresponding amount of
market discount is included in income. In general terms, market discount on a
Note may be treated as accruing either (i) under a constant yield method or (ii)
in proportion to remaining accruals of original issue discount, if any, or if
none, in proportion to remaining distributions of interest on the Note. The
Trustee will make available, as required by the IRS, to beneficial owners of
Notes information necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if such discount is less than 0.25 percent of the
remaining stated redemption price at maturity of such Note multiplied by its
weighted average remaining life. Weighted average remaining life presumably
would be calculated in a manner similar to weighted average life, taking into
account payments (including prepayments) prior to the date of acquisition of the
Note by the subsequent purchaser. If market discount on a Note is treated as
zero under this rule, the actual amount of market discount must be allocated to
the remaining principal distributions on the Note and, when each such
distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Premium. A purchaser of a Note that purchases such Note at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Note (a "Premium Note") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under section 171(c)(2) of the Code, to treat such premium as
"amortizable bond premium." If a beneficial owner makes
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such an election, the amount of any interest payment that must be included in
such beneficial owner's income for each period ending on a Payment Date will be
reduced by the portion of the premium allocable to such period based on the
Premium Note's yield to maturity. Such premium amortization should be made using
constant yield principles. If such election is made by the beneficial owner, the
election will also apply to all bonds the interest on which is not excludible
from gross income ("fully taxable bonds") held by the beneficial owner at the
beginning of the first taxable year to which the election applies and to all
such fully taxable bonds thereafter acquired by it, and is irrevocable without
the consent of the IRS. If such an election is not made, (i) such a beneficial
owner must include the full amount of each interest payment in income as it
accrues, and (ii) the premium must be allocated to the principal distributions
on the Premium Note and when each such distribution is received, a loss equal to
the premium allocated to such distribution will be recognized. Any tax benefit
from the premium not previously recognized will be taken into account in
computing gain or loss upon the sale or disposition of the Premium Note.
Special Election. A beneficial owner may elect to include in gross
income all "interest" that accrues on a Note by using a constant yield method.
For purposes of the election, the term "interest" includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A beneficial
owner should consult its own tax advisor regarding the time and manner of making
and the scope of the election and the implementation of the constant yield
method.
Sale or Exchange of Notes
If a Note is sold or exchanged, the seller of the Note will recognize
gain or loss equal to the difference between the amount realized on the sale or
exchange and the adjusted basis of the Note. The adjusted basis of a Note will
generally equal its cost, increased by any OID or market discount includible in
income with respect to the Note through the date of sale and reduced by any
principal payments previously received with respect to the Note, any payments
allocable to previously accrued OID or market discount and any amortized market
premium. Subject to the market discount rules, gain or loss will generally be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be used only to offset capital gains.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Notes, may be subject to the "backup withholding tax"
under section 3406 of the Code at a rate of 31 percent if recipients of those
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from that tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The IRS has issued withholding regulations (the "Withholding
Regulations"), which make certain modifications to withholding, backup
withholding and information reporting rules. The Withholding Regulations
attempt to unify certification requirements and modify certain reliance
standards. The Withholding Regulations will generally be effective for payments
made after December 31, 2000, although taxpayers may begin compliance with the
Withholding Regulations immediately. Prospective investors are urged to consult
their own tax advisors regarding the Withholding Regulations.
Foreign Investors
Distributions made on a Note to, or on behalf of, a beneficial owner
that is not a U.S. Person generally will be exempt from U.S. federal income and
withholding taxes. The term "U.S. Person " means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
an estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States person has
the authority to control all substantial decisions of
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the trust. This exemption is applicable provided (a) the beneficial owner is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of the Note, (b) the beneficial owner signs a statement under
penalties of perjury that certifies that such beneficial owner is not a U.S.
Person, and provides the name and address of such beneficial owner, and (c) the
last U.S. Person in the chain of payment to the beneficial owner receives such
statement from such beneficial owner or a financial institution holding on its
behalf and does not have actual knowledge that such statement is false.
Beneficial owners should be aware that the IRS might take the position that this
exemption does not apply to a beneficial owner that is a "controlled foreign
corporation" described in Section 881(c)(3)(C) of the Code.
If income or gain with respect to a Note is effectively connected with
a U.S. trade or business carried on by a Noteholder who or which is not a U.S.
person, the 30 percent withholding tax will not apply but such Noteholder will
be subject to U.S. federal income tax at graduated rates applicable to U.S.
persons.
The Withholding Regulations would require, in the case of Notes held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
State and Local Tax Consequences
Investors should consult their own tax advisors regarding whether the
purchase of the Notes, either alone or in conjunction with an investor's other
activities, may subject an investor to any state or local taxes based on an
assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of a Note. State and local tax laws may
differ substantially from the corresponding federal tax law, and the foregoing
discussion does not purport to describe any aspect of the tax laws of any state
or other jurisdiction. Accordingly, potential investors should consult their
own tax advisors with regard to such matters.
The federal and state income tax discussions set forth above are
included for general information only and may not be applicable depending upon a
Noteholder's particular tax situation. Prospective purchasers should consult
their tax advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the notes, including the tax consequences under
state, local, foreign and other tax laws and the possible effects of changes in
federal or other tax laws or in the interpretations thereof.
Ratings
Each Class of Notes offered by this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies. These ratings will address, in the opinion of
such Rating Agencies, the likelihood that the Issuer will be able to make timely
payment of all amounts due on the related Notes in accordance with the terms
thereof. These ratings will neither address any prepayment or yield
considerations applicable to any Notes nor constitute a recommendation to buy,
sell or hold any Notes.
ERISA Considerations
The Prospectus Supplement for each series of Notes will summarize
considerations under ERISA relevant to the purchase of Notes of that series by
employee benefit plans and individual retirement accounts.
Plan of Distribution
The Notes will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices to
be determined at the time of sale or at the time of commitment therefor.
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In connection with the sale of the Notes, underwriters may receive
compensation from the Issuer or from purchasers of the Notes in the form of
discounts, concessions or commissions. The underwriters and dealers
participating in the distribution of the Notes may be deemed to be underwriters
in connection with the Notes, and any discounts or commissions received by them
from the Issuer and any profit on the resale of Notes by them may be deemed to
be underwriting discounts and commissions under the Securities Act.
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
notes at levels above those which might otherwise prevail in the open market.
Any stabilizing, if commenced, may be discontinued at any time.
The underwriting agreement pertaining to the sale of the Notes will
provide that the obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to purchase all
the Notes subject to that agreement if any are purchased and that, in limited
circumstances, the Issuer will indemnify the underwriters and the underwriters
will indemnify the Issuer against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments required to
be made in respect thereof.
Purchasers of Notes, including dealers, may, depending on the facts
and circumstances of their purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Noteholders should consult with their legal advisors in this regard
prior to any such reoffer or sale.
Legal Opinions
Certain legal matters will be passed upon for the Issuer by Don H.
Liu, Esq., General Counsel of the Originator and IKON Office Solutions, the
parent company of the Originator, and for the Underwriters by Dewey Ballantine
LLP, New York, New York. As of the date of this Prospectus, Mr. Liu is a full-
time employee and an officer of IKON Office Solutions and a beneficial owner of
shares of common stock of IKON Office Solutions and options to purchase shares
of common stock of IKON Office Solutions.
Experts
The balance sheet of IKON Receivables, LLC at ______, 1999, appearing
in this Prospectus and Registration Statement, has been audited by ________,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and is included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
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Index To Financial Statements
Page
----
Report of Independent Auditors 44
Balance Sheet of the Issuer as of ______, 1999 45
Notes to Balance Sheet 46
43
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Report of Independent Auditors
------------------------------
The Board of Directors
IKON Receivables, LLC
We have audited the accompanying balance sheet of IKON Receivables, LLC (an
indirect wholly-owned subsidiary of IOS Capital, Inc.) as of ______, 1999. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of IKON Receivables, LLC at ______,
1999, in conformity with generally accepted accounting principles.
___________________, 1999
Philadelphia, Pennsylvania
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Exhibit 1
IKON Receivables, LLC
Balance Sheet
______, 1999
- -------------------------------------------------------------------------------
Assets
Cash ................................................................... $[___]
Total assets ...................................................... $[___]
======
Liabilities and Member's Equity
Liabilities............................................................. $[___]
Member's equity......................................................... $[___]
------
Total liabilities and member's equity................................... $[___]
======
See accompanying notes.
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IKON Receivables, LLC
Notes to Balance Sheet
______, 1999
1. Organization
------------
IKON Receivables, LLC (the "Company"), an indirect wholly-owned subsidiary
of IOS Capital, Inc. ("IOS Capital"), was organized in the State of Delaware
on January 20, 1999, and is managed by IKON Receivables Funding, Inc. (the
"Manager").
The Company was organized to engage exclusively in the following business
and financial activities: to purchase or acquire from any other subsidiary
of IKON Office Solutions, Inc. any right to payment, whether constituting an
account, chattel paper, instrument or general intangible, and certain
related property (other than equipment) and rights (collectively, "Lease
Receivables"), and to hold, sell, transfer, pledge or otherwise dispose of
Lease Receivables or interests therein pursuant to an Assignment and
Servicing Agreement by and among IKON Receivables-1, LLC ("the Sole
Member"), as Seller, IOS Capital, as Originator and Servicer, and the
Company, as Issuer; to enter into any agreement related to any Lease
Receivables that provides for the administration, servicing and collection
of amounts due on such Lease Receivables; to enter into and perform its
obligations under the Assignment and Servicing Agreement, and any interest
rate hedging arrangements in connection therewith; to distribute Lease
Receivables or proceeds from Lease Receivables and any other income to its
Sole Member in such amounts as determined by the Manager; and to engage in
any lawful act or activity and to exercise any power that is incidental and
is necessary or convenient to the foregoing and permitted under Delaware
law.
Neither the Sole Member nor the Manager shall be liable for the debts,
liabilities, contracts or other obligations of the Company solely by reason
of being the Sole Member or Manager of the Company.
2. Capital Contribution
--------------------
IKON Receivables-1, LLC made an initial capital contribution of $1,000 to
IKON Receivables, LLC on April 6, 1999.
3. Registration Statement
----------------------
At ______, 1999, the Company was in the process of registering with the
Securities and Exchange Commission to be able to issue up to $___ million
of its Lease-Backed Notes.
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Index Of Terms
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
1934 Act........................................... 18
Additional Account................................. 33
Additional Lease................................... 25
Adjusted Lease..................................... 25
Asset Pool......................................... 13
Assignment and Servicing Agreement................. 13
Available Funds.................................... 24
Bankruptcy Code.................................... 35
Business Day....................................... 23
Casualty........................................... 24
Casualty Payment................................... 24
Cede............................................... 26
CEDEL Participants................................. 27
CLAS............................................... 20
Code............................................... 37
Collection Account................................. 32
Commission......................................... 18
Cooperative........................................ 27
Cut-off Date....................................... 13
Definitive Notes................................... 28
Depositories....................................... 26
Discount Rate...................................... 16
Discounted Present Value of the Leases............. 16
Discounted Present Value of the Performing Leases.. 16
Distribution Account............................... 33
DTC................................................ 26
Due Period......................................... 24
Early Termination Lease............................ 25
Eligible Account................................... 33
Eligible Investments............................... 33
Eligible Leases.................................... 15
Equipment.......................................... 13
Euroclear Operator................................. 27
Euroclear Participants............................. 27
Events of Default.................................. 34
High Risk Review List.............................. 20
IKON marketplaces.................................. 18
IKON Office Solutions.............................. 18
Indirect Participants.............................. 26
Industry........................................... 28
IOS Capital........................................ 13
IRS................................................ 37
Issuer............................................. 13
IT................................................. 21
Lease.............................................. 13
Lease Payment...................................... 24
Lease Receivables.................................. 13
Lessee............................................. 13
Lessees............................................ 13
Manager............................................ 14
Non-Performing Leases.............................. 25
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Originator......................................... 13
Originator's Leasing Business...................... 14
Participants....................................... 26
Payment Date....................................... 18
Pool Factor........................................ 18
Pre-Funding Account................................ 33
Premium Note....................................... 39
Rating Agencies.................................... 23
Rating Agency...................................... 23
Reserve Account.................................... 33
Retainable Deposit................................. 25
Rules.............................................. 27
Seller............................................. 13
Servicer........................................... 13
Servicer Advance................................... 30
Servicer Events of Default......................... 31
Servicing Fee...................................... 30
Substitute Lease................................... 25
Systems............................................ 28
Tax Counsel........................................ 37
Termination Payment................................ 25
Terms and Conditions............................... 27
Transaction Accounts............................... 33
Transaction Documents.............................. 29
Trust Depository................................... 27
U.S. Person........................................ 40
Warranty Lease..................................... 25
Withholding Regulations............................ 40
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Notes.
SEC Filing Fee $ *
Indenture Trustee's Fees and Expenses......................... *
Legal Fees and Expenses....................................... *
Accounting Fees and Expenses.................................. *
Printing and Engraving Expenses............................... *
Blue Sky Qualification and Legal Investment Fees and Expenses. *
Rating Agency Fees............................................ *
Miscellaneous................................................. *
*
- -------------------------------------------------------------- ---
TOTAL $
* To be filed by Amendment.
____________________________
Item 15. Indemnification of Managers and Officers.
Indemnification. Under the Delaware Limited Liability Company Act, the
Registrant has the power and in some instances may be required to provide an
agent, including an officer or manager, who was or is a party or is threatened
to be made a party to certain proceedings, with indemnification against certain
expenses, judgments, fines, settlements and other amounts under certain
circumstances.
Section 7.1 of the Limited Liability Company Agreement of IKON Receivables,
LLC. provides that all officers and managers of the company shall be indemnified
by the company from and against all expenses, liabilities or other matters
arising out of their status as an officer or manager for their acts, omissions
or services rendered in such capacities. IOS Capital, Inc., the ultimate
corporate parent of IKON Receivables LLC., maintains certain policies of
liability insurance coverage for the officers and managers of IOS Capital, Inc.
and certain of its subsidiaries, including IKON Receivables, LLC.
The form of the Underwriting Agreement, filed as Exhibit 1.1 to this
Registration Statement, provides that IKON Receivables, LLC will indemnify and
reimburse the underwriter(s) and each controlling person of the underwriter(s)
with respect to certain expenses and liabilities, including liabilities under
the 1933 Act or other federal or state regulations or under the common law,
which arise out of or are based on certain material misstatements or omissions
in the Registration Statement. In addition, the Underwriting Agreement provides
that the underwriter(s) will similarly indemnify and reimburse IKON Receivables,
LLC with respect to certain material misstatements or omissions in the
Registration Statement which are based on certain written information furnished
by the underwriter(s) for use in connection with the preparation of the
Registration Statement.
Insurance. As permitted under the Delaware Limited Liability Company Act,
the Registrant's Limited Liability Company Agreement permit the managers to
purchase and maintain insurance on behalf of the Registrant's
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agents, including its officers and managers, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not such Registrant would have the power to indemnify them against
such liability under applicable law.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of IKON Receivables, LLC.*
3.2 Limited Liability Company Agreement of IKON Receivables, LLC.*
4.1 Form of Indenture between the Issuer and the Indenture Trustee.*
5.1 Opinion of [____________], LLP with respect to validity.*
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters.*
10.1 Form of Receivables Acquisition Agreement.*
23.1 Consents of Dewey Ballantine (included in Exhibit 8.1 hereto).*
23.2 Consents of [__________ ], LLP(included in Exhibit 5.1 hereto).*
23.3 Consents of Accountants*
25.1 Form of Statement of Eligibility of Indenture Trustee*
99.1 Form of Prospectus Supplement
__________________________
* To be Filed by Amendment.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to managers, officers and controlling persons of the Registrant
pursuant to the provisions described above in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a manager, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such manager, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of their counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which is registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant
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<PAGE>
to Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement; provided,
however, that paragraphs (i) and (ii) do not apply if the information required
to be included in the post-effective amendment by those paragraphs is contained
in periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
D. Undertaking pursuant to the Trust Indenture Act of 1939.
The Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act ("Act") in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 24th day of
November, 1999. As of the date hereof, the Registrant reasonably believes that
the Security rating requirement for asset-backed offerings on Form S-3 will be
met at the time of each sale.
IKON RECEIVABLES, LLC
By: IKON RECEIVABLES FUNDING INC.,
as Sole Member and Initial Manager
By: /s/ [Robert K.McLain]
---------------------------
Name: [Robert K. McLain]
Title: [President]
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------ -------------------------------------- --------------------------------------
<S> <C> <C>
/s/ Robert K. McLain President & Director November 24, 1999
- -----------------------------
Robert K. McLain
/s/ Patricia Donato Secretary & Director November 24, 1999
- -----------------------------
Patricia Donato
/s/ Joseph Churchman Treasurer & Director November 24, 1999
- -----------------------------
Joseph Churchman
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of IKON Receivables, LLC*
3.2 Limited Liability Company Agreement of IKON Receivables, LLC*
4.1 Form of Indenture between the Issuer and the Indenture Trustee.*
5.1 Opinion of [ ________ ], LLP with respect to validity.*
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters.*
10.1 Form of Receivables Acquisition Agreement.*
23.1 Consents of Dewey Ballantine LLP (included in Exhibit 8.1 hereto).*
23.2 Consents of [ _________ ], LLP (included in Exhibit 5.1 hereto).*
23.3 Consents of Accountants*
25.1 Form of Statement of Eligibility of Indenture Trustee*
99.1 Form of Prospectus Supplement.
____________________________
* To be Filed by Amendment.
II-5
